Title: The Timken Company (TKR)
1The Timken Company (TKR)
- Presented by,
- Han Yang
- Nurul Alam Rafi
- Kannu Priya
- Presented on April 24, 2012
2Agenda
- Introduction
- Macro-economy
- Industry
- Timkens Business
- Financial analysis
- Multiple valuation
- DCF valuation
- Recommendation
3Introduction
- Company The Timken Company Ticker TKR
- Reg. in NYSE
- Current market price 49.57 (Previous close
price on 4/23/2012) - PEG 0.84
- Industry Industrial Machinery GICS
Map place 20106020 - Founded in 1899 by Henry Timken with two patents
on the design of tapered roller bearings. - TKR develops, manufactures, markets and sells
products for friction management and mechanical
power transmission, alloy steels and steel
components. - 1 yr implied growth in EPS 28
Graham g 1.25 - Greenblatt profitability ratios
- EBIT/TA 32 EBIT/EV14.7
Sum 47 -
4Relationship to economy
- The Bearing industry is correlated to
Macroeconomic activities
Source World Bank Timken 09, 10 10-K
5Industry overview
- Bearing industry in the US generated 7.9 billion
revenue in 2011. - The industry is at mature stage
- The annual growth rate from 2006 to 2011 is 1.4
- The forecasted annual growth for next 5 years is
2.3
6Up and down stream
- The up stream of bearing industry is steel
industry. - The customers of bearing products include
- Transportation industry
- Defense industry
- Clean energy (wind turbine)
7Major players in the US
Source IBIS World
8Business Overview
- Started with two patents on the design of tapered
roller bearing, Timken grew to become the worlds
largest manufacturer of tapered roller bearing. - 10 technology and engineering centers
- 14 distribution centers and warehouses and
- nearly 21,000 employees.
- operates in 30 countries and territories.
- Have many customers in many industries and no
single customer generates 10 or more of total
sales or segment sales - Around 66 sales comes from the US market.
9(No Transcript)
10Bearings Power Transmission
- Bearings can be of different shapes and sizes.
- Have 4 components 1) the cone or inner race
- 2)the
cup or outer race - 3)the
rollers in between cup and cone - 4)the
cage between the rollers - Usage
- To reduce friction where shafts, gears or wheels
are used. - To provide high load tolerance
- Applications
- Transportation including cars, trucks, heavy
trucks, helicopters, airplanes and trains. - Industries including mills, mining, oil and gas
extraction and production, gear drives, health
and positioning control, wind mills and food
processing.
11Picture source www.timken.com
- Tapered Roller Bearing Ball Bearings
Spherical Plain Bearings - High Performance Bearings Precision Bearings
Aerospace Bearings - Integrated Bearing Assemblies
Precision Bearing Assemblies
12Steel
- produces more than 450 grades of carbon,
micro-alloy and alloy steel, which are sold as
ingots, bars and tubes in a variety of
chemistries, lengths and finishes and custom made
precision steel products for many industries. - Applications
- a wide variety of end products including oil
country drill pipe, bits and collars, gears,
hubs, axles, crankshafts and connecting rods,
bearing races and rolling elements, bushings,
fuel injectors, wind energy shafts and other
demanding applications, where mechanical power
transmission is critical to the end customer.
13Distribution and Services
- Mostly use their own efficient distributors to
sell products in Mobile industries, Process
Industries and Aerospace and Defense segments. - Has a joint venture named CoLinx, LLC in North
America to support sales in Process segment. - Timken provides expert services for bearing
maintenance and repair. Total services accounted
for less than 5 of the sales last year.
14Risks
- Pricing pressure resulted from high competition
in bearing and steel industry and potential
over-capacity in Steel industry. - Cyclical nature of many customers and sustained
uncertainty in financial market. - Substantial costs and limitations on operation
imposed by environmental laws and regulations.
15Recent Acquisitions and new products
- Acquired Drives LLC in 2011.
- - Manufactures highly engineered products like
precision roller chain, pintle chain,
agricultural conveyor chain, engineering class
chain, oil filled roller chain and augur
products. - Acquired Philadelphia Gear Corp. in 2011.
- - provides aftermarket gear box repair
services and gear-drive systems for the
industrial, energy and military marine sectors,
including refining and pipeline systems, mining,
cement, pulp and paper making and water
management systems
16Financial analysis revenue
Timken 08,09,10,11 10-Ks
17Financial analysis EBIT margin
Timken 08,09,10,11 10-Ks
18Financial analysis Dep Capex
Timken 08,09,10,11 10-Ks
19Financial analysis - ROE
2007 2008 2009 2010 2011
Profit margin 4.9 5.4 -4.3 6.8 8.8
Assets turnover 1.03 1.11 0.78 0.97 1.19
Leverage (A/E) 2.23 2.73 2.51 2.15 2.13
ROE 11.41 16.31 -8.40 14.15 22.24
20Comparable Companies
21Multiples
Timken (TKR) SKF (SKFRY.PK) NSK (NPSKY.PK)
Price per share 50.51 25.09 13.64
D/A 9 14 35
P/E 11 13.25 21.72
P/S .95 1.13 .83
EV/Revenue .96 1.27 1.08
EV/EBITDA 5.36 7.77 2.29
Revenue EBITDA EPS
Anti Friction Bearings 3334 678 3.04
Steel 1836.7 316.5 1.55
Total 5170 924.2 4.59
Data source for multiples Yahoo Finance
22Contd.
Tenaris (TS) Gerdau (GGB) Nucor (NUE) Steel Dynamics (STLD)
Price per share 34.92 9.55 39.67 12.89
D/A 4 31 25 0
P/E 15.48 14.62 16.54 13.46
P/S 2.08 .85 .63 .36
EV/Revenue 2.03 1.12 .72 .6
EV/EBITDA 8.41 8.61 7.32 6.6
Data source for multiples Yahoo Finance
23Valuation
Anti-friction Bearings Power Transmission Anti-friction Bearings Power Transmission Steel Steel
Enterprise Value Equity Value per Share Enterprise Value Equity Value Per Share Value per Share Weight
P/E P/E 53.20 23.25 76.45 0.25
EV/EBITDA EV/EBITDA 3,408.33 2,448.13 59.73 0.25
EV/Revenue EV/Revenue EV/Revenue 3,916.86 2,052.51 60.89 0.25
P/S 33.42 18.42 51.84 0.25
Final Value Final Value Final Value 62.23
24Recommendation
- Multiple valuation 62.23
- DCF valuation 63.67
- Current price 49.57
- Recommendation buy 200 share at market price
approximately 3 of total portfolio