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The Timken Company (TKR)

The Timken Company (TKR). Presented by, Han Yang Nurul Alam Rafi Kannu Priya Presented on April 24, 2012. Agenda. Introduction Macro-economy Industry Timken’s Business Financial analysis Multiple valuation DCF valuation Recommendation. Introduction.

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The Timken Company (TKR)

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  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 • Timken’s 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/EV=14.7% 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 world’s 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. 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.

  10. 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

  11. 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.

  12. 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.

  13. 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.

  14. 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

  15. Financial analysis – revenue Timken 08’,09’,10’,11’ 10-Ks

  16. Financial analysis – EBIT margin Timken 08’,09’,10’,11’ 10-Ks

  17. Financial analysis – Dep & Capex Timken 08’,09’,10’,11’ 10-Ks

  18. Financial analysis - ROE

  19. Comparable Companies

  20. Multiples Data source for multiples: Yahoo Finance

  21. Contd. Data source for multiples: Yahoo Finance

  22. Valuation

  23. 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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