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Snap-On. RCMP Investment Presentation. Richie Hartz Ha Da Jang Diana Yang. Diana Yang Iris Zhang Ishan Prasad Hexiyou Xu. April 16, 2013. Agenda. Introduction Company Overview Industry Overview Stock Performance Financial Analysis Valuation Recommendation. Introduction. Company.

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Presentation Transcript
snap on

Snap-On

RCMP Investment Presentation

Richie Hartz

Ha Da Jang

Diana Yang

Diana Yang

Iris Zhang

Ishan Prasad

Hexiyou Xu

April 16, 2013

agenda
Agenda

Introduction

Company Overview

Industry Overview

Stock Performance

Financial Analysis

Valuation

Recommendation

Introduction

Company

Industry

Valuation

company profile
Company Profile
  • Manufacturer and marketer of tools, equipment, and diagnostics
  • Provides repair information and systems solutions
  • Four business segments: Commercial and Industrial, Snap-On Tools, Repair Systems & Information, and Financial Services
  • Headquarters: Kenosha, Wisconsin
  • Employs over 11,200 people worldwide
  • Services professional in over 130 countries
  • Has continuously paid dividends since 1939 without interruption or reduction
  • Market Cap: $4.95 Billion

Source: Snap-On Inc. 2012 10-K

Introduction

Company

Industry

Valuation

company history
Company History

1956:

Acquired Joseph P Weidenhoff Company, manufacturer of timing and analysis equipment

1920:

Snap-On Wrench Company founded by William Seidemann and Joseph Johnson

2005:

Entered India

1931

1956

1920

1950s

1978

2005

1950s:

Expanded concept of walk-in vans and pioneered franchisee van channel

1978:

Listed on NYSE

1931:

Entered international arena

Source: Snap-On Inc. official website

Introduction

Company

Industry

Valuation

sales breakdown
Sales Breakdown
  • Opportunity to grow globally as majority of sales is domestic
    • Ability to leverage technology and products across customers and regions
  • Economies of scale – optimize cost structure

Breakdown of 2012 Net Sales Before Financial Services of $2.94 bn

Geographic

Business Segment

Product

Source: Snap-On Inc. 2012 10-K

Introduction

Company

Industry

Valuation

more about snap on
More About Snap-On

End Markets

  • Vehicle dealerships
  • Repair centers
  • Aviation
  • Aerospace
  • Agriculture
  • Construction
  • Government and military
  • Mining
  • Natural resources & power generation

Brands

  • Snap-On
  • ATI
  • Blue-Point
  • BAHCO
  • Irimo
  • Fish and Hook
  • Sun and ShopKey Brands
  • Cartec
  • John Bean

Distribution Channels

  • Mobile Van Channel
  • Company Direct Sales
  • Distributors
  • E-Commerce

Source: Snap-On Inc. 2012 10-K

Introduction

Company

Industry

Valuation

product segments
Product Segments

FY2012 Revenues by Product Segment

  • Equipment:
  • Air compressors/Air processing equipment
  • Battery charging and testing
  • Cooling system
  • Engine service
  • Exhaust
  • Tire and wheel
  • Paint spray
  • Diagnostics & Repair Info:
  • Fuel and engine systems (Compression gauge sets, fuel system)
  • Hand held diagnostics (Gas analyzers, scan tool accessories)
  • Testing and electronics (Circuit testers, computer, electrical)
  • Tools:
  • Hand tools (Aviation, brake, measuring, headlamp, hammers, sockets)
  • Power tools (Power tool accessories, flashlights)
  • Tool storage (Floor mats, metal boxes, work surface, roll carts)

Source: Snap-On Inc. official website

Introduction

Company

Industry

Valuation

historical financials
Historical Financials

Revenues

Operating Earnings

Capital Expenditures

Operations before FinCo - Operating Margins (%)

Source: Company 2012 10-K

Introduction

Company

Industry

Valuation

key financial ratios
Key Financial Ratios

Source: 2012 10-K

Introduction

Company

Industry

Valuation

company profile competitive strengths
Company Profile — Competitive Strengths

Source: Snap-On 2012 10-K, Company Annual Report, DataMonitor Snap-On Report

Introduction

Company

Industry

Valuation

industry overview
Industry Overview
  • Sector: Industrial Goods
  • Industry: Small Tools and Accessories
  • Most tools are for automobile
  • Growth from 4 sources:
    • Franchise network
    • Expand in garage
    • Extend to critical industries
    • Build in emerging markets

Source: Snap-On 2012 10-K, Company Annual Report, DataMonitor Snap-On Report

Introduction

Company

Industry

Valuation

porter s five forces
Porter’s Five Forces

Small Tools & Accessories

Threat of New Entrants: Low

Lack of Industry experience/ know-how

Threat of Substitute Products: Low

Matured industry with large competitors

Bargaining Power of Buyers: Moderate to High

Pricing Pressures due to intense competition and high consumer expectations

Bargaining Power of Sellers: Moderate

High concentration of sellers, however subject to market prices

Intensity of Competition: High

Large, established players dominating market

Source: Snap-On 2012 10-K, Company Annual Report, DataMonitor Snap-On Report

Introduction

Company

Industry

Valuation

global outlook
Global Outlook

Expected Global Trends

  • Robust consumer demand is expected to support increased production in North America at a moderate pace
  • Macro economic uncertainties affecting production in Europe
  • Continued high expected growth in emerging markets

Future Growth Drivers

  • Increased in new mobile lead to increase in more tools usage
  • The number of current mobile in use is large enough to support sale
  • Increase in purchasing power lead to using more professional tools

Source: DataMonitor Snap-On Report, Company 2012 10-K

Introduction

Company

Industry

Valuation

exposure to steel price fluctuation
Exposure to Steel Price Fluctuation

Steel is the principal raw material

Source: Bloomberg

Introduction

Company

Industry

Valuation

exposure to consumer credit risk
Exposure to Consumer Credit Risk

Slowdown in global economy can adversely affect the revenue collection

Introduction

Company

Industry

Valuation

other macroeconomic indicators
Other Macroeconomic Indicators

Source: Bloomberg

Introduction

Company

Industry

Valuation

stock performance
Stock Performance

Source: Yahoo! Finance

Introduction

Company

Industry

Valuation

snap on total shareholder return 1
SNAP-ON TOTAL SHAREHOLDER RETURN (1)
  • Notes:
  • Assumes $100 was invested on Dec. 31, 2007, and that dividends were reinvested quarterly
  • Company’s fiscal year ends on the Saturday that is on or nearest to December 31 of each year, for eas of calculation, the fiscal year end is assymed to be December 31.
  • Peer Group consists of: Stanley Black & Decker, Inc. Danaher, Emerson Electric Co., Genuine PartsCompany, Newell Rubbermaid, Pentair Ltd., SPX Corporation and W.W. Grainger

Source: Company 2012 Annual Report

Introduction

Company

Industry

Valuation

comparable stock performances
Comparable Stock Performances
  • GPC: Genuine Parts Company
  • DHR: Danaher
  • SWK: Stanley Black & Decker
  • SPW: SPX Corporation
  • GWW: W.W. Grainger

Source: Yahoo! Finance

Introduction

Company

Industry

Valuation

valuation trading comparables
Valuation — Trading Comparables

Source: Capital IQ

Introduction

Company

Industry

Valuation

making the numbers work
Making the Numbers Work

Valuation shows that Snap-On is currently trading at a discount to its peers and to its intrinsic value

Current

$81.23

  • 52-week high: $56.88
  • 52-week low: $85.50

52-Week Range

$56.88

$85.50

  • 2.5%-3.5%Perpetuity growth rate
  • 8.57% - 10.57% WACC

DCF

$81.67

$117.59

  • 15.0x – 21.7x LTM EPS of 5.25

Trading

Price/LTM EPS

$79.01

$114.23

Introduction

Company

Industry

Valuation

valuation wacc analysis
Valuation — WACC Analysis

Source: Bloomberg

Introduction

Company

Industry

Valuation

valuation snap on sans financial services
VALUATION — SNAP-ON SANS FINANCIAL SERVICES

Introduction

Company

Industry

Valuation

valuation financial services
VALUATION — FINANCIAL SERVICES

Introduction

Company

Industry

Valuation

risks decision drivers
Risks & Decision Drivers

Risks

Earnings release in 2 days

Competitive Market Segment

Macroeconomic Landscape

  • GICS Diversification
  • Stronger growth compared to peers
  • DCF Valuation

Decision Drivers

Introduction

Company

Industry

Valuation

recommendation
Recommendation

Buy 100 shares @ Market Price

Illustrative purposes:

100 * $81.23 = $8,123

Introduction

Company

Industry

Valuation

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