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The Timken Company (TKR)

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Title: The Timken Company (TKR)


1
The Timken Company (TKR)
  • Presented by,
  • Han Yang
  • Nurul Alam Rafi
  • Kannu Priya
  • Presented on April 24, 2012

2
Agenda
  • Introduction
  • Macro-economy
  • Industry
  • Timkens Business
  • Financial analysis
  • Multiple valuation
  • DCF valuation
  • Recommendation

3
Introduction
  • 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

4
Relationship to economy
  • The Bearing industry is correlated to
    Macroeconomic activities

Source World Bank Timken 09, 10 10-K
5
Industry 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

6
Up 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)

7
Major players in the US
Source IBIS World
8
Business 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)
10
Bearings 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.

11
Picture 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

12
Steel
  • 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.

13
Distribution 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.

14
Risks
  • 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.

15
Recent 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

16
Financial analysis revenue
Timken 08,09,10,11 10-Ks
17
Financial analysis EBIT margin
Timken 08,09,10,11 10-Ks
18
Financial analysis Dep Capex
Timken 08,09,10,11 10-Ks
19
Financial 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
20
Comparable Companies
21
Multiples
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
22
Contd.
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
23
Valuation
      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  
24
Recommendation
  • Multiple valuation 62.23
  • DCF valuation 63.67
  • Current price 49.57
  • Recommendation buy 200 share at market price
    approximately 3 of total portfolio
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