Aldila, Inc. Analysis(ALDA) George Freeman, Kyle Mathews, Brian Timmer, & Mauricio Kaufmann Tuesday, October 18, 2005
Company Overview • Aldila, Inc. designs, manufactures and markets high performance graphite golf shafts used in golf clubs assembled and marketed throughout the world by major golf club companies, component distributors and custom club makers, and is a leading shaft brand among consumers and on the PGA tour. • Aldila also manufacturers hockey sticks and most recently hockey blades, in addition to composite pre-impregnated material for its golf shaft business and external sales. Externally, Aldila manufacturers carbon fiber for internal use through and ownership interest in Carbon Fiber Technology, LLC.
Golf Operations • Recently completed the transition of relocating their shaft production out of the U.S. into Mexico and China • Golf Digest named their NV shaft the “hottest shaft in golf” • The popularity of the NV shaft has become so strong, virtually all club companies have elected to carry the shaft in their custom fit or stock custom programs. • The NV hybrid shaft line is being well received as a popular choice in the rapidly expanding hybrid club market.
Hockey Business • Brings products to the market under its Mission Hockey brand name • Hockey operations have been on hold due to recent NHL lock-out • Now that lock-out is over, the company is very optimistic about the potential of the market • Currently developing a new line of sticks to be released in the second half of 2005
Composite Materials Business • Aldila’s materials are going into a wide variety of applications: body armor, fishing rods, baseball bats, arrows, marine and space applications, and many more • Global shortage of carbon fiber benefits companies with direct access to it • Aldila’s joint venture, Carbon Fiber Technology LLC (CFT), gives them that critical access • CFT continues to be a growth opportunity for Aldila and compliments their core shaft business
Global Carbon Fiber Situation • The 1997-98 crisis • The influx of new capacity overwhelmed the market demand and the world-wide over-supply lasted for six years • Created under investment in the industry from companies reluctance to expand • In 2004, demand finally caught up and carbon fiber shortages have existed since
The Road Ahead • Excellent 2004 fiscal year which will hopefully be repeated in the future • Appears to be a unique opportunity for graphite shaft suppliers non-existent to other golf related manufacturers • Increased opportunities for the pre-impregnated business, allowing further growth for CFT and increased ability to leverage their vertical integration
Key Statistics • Consolidated sales of $52.8 million, a 40% increase over 2003 • Overall gross margins improved to 34% from 19% in 2003 • Net income was $9.3 million compared to a $1.7 million loss in 2003 • Cash and marketable securities grew from $6.9 million to $16.5 million • Golf sales grew 35%, units were up 10%, and average selling prices rose 22% • Hockey sales grew 13% • Pre-impregnated sales grew 141%
Our Outlook • Recommendation: Underweight • DCF Price Value: $35.00 • Current Price: $22.93 -Potential upside heavily out weights risk associated with the downside