SNAP-ON
Richie HartzInvestment Presentation
RCMP
Ha Da Jang
Diana Yang
Diana Yang
Iris Zhang
Ishan Prasad
Hexiyou Xu
April 16, 2013
1
AGENDA
Introduction
Company Overview
Industry Overview
Stock Performance
Financial Analysis
Valuation
Recommendation
INTRODUCTION
COMPANY
INDUSTRY
VALUATION
2
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
3
COMPANY HISTORY
1920:
Snap-On Wrench
Company founded by
William Seidemann
and Joseph Johnson
1920
1931
1931:
Entered
international
arena
1956:
Acquired Joseph P
Weidenhoff Company,
manufacturer of
timing and analysis
equipment
1950s
2005:
Entered India
1978
1956
1950s:
Expanded concept of
walk-in vans and
pioneered franchisee
van channel
2005
1978:
Listed on NYSE
Source: Snap-On Inc. official website
INTRODUCTION
COMPANY
INDUSTRY
VALUATION
4
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
5
MORE ABOUT SNAP-ON
Brands
•
•
•
•
•
•
•
•
•
End Markets
•
•
•
•
•
•
•
•
•
Snap-On
ATI
Blue-Point
BAHCO
Irimo
Fish and Hook
Sun and ShopKey Brands
Cartec
John Bean
Vehicle dealerships
Repair centers
Aviation
Aerospace
Agriculture
Construction
Government and military
Mining
Natural resources & power generation
Distribution Channels
•Mobile Van Channel
•Company Direct Sales
•Distributors
•E-Commerce
Source: Snap-On Inc. 2012 10-K
INTRODUCTION
COMPANY
INDUSTRY
VALUATION
6
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
7
HISTORICAL FINANCIALS
Revenues
Operating Earnings
Capital Expenditures
Operations before FinCo - Operating Margins (%)
Source: Company 2012 10-K
INTRODUCTION
COMPANY
INDUSTRY
VALUATION
8
KEY FINANCIAL RATIOS
2010A
2011A
2012A
2.2%
2.5%
1.8%
13.3%
6.2%
12.1%
17.9%
9.5%
13.5%
16.8%
10.2%
13.9%
Liquidity Ratios
Current Ratio
Quick Ratio
1.91
1.46
2.20
1.50
2.37
1.63
Leverage Ratios
Debt to Equity
Interest Coverage
30%
5.83
17%
6.40
8%
7.59
Profitablility Ratios
Dividend Yield
Return on Equity (ROE)
Return on Asset (ROA)
Profit Margin
Operating Efficiency Ratios
Receivables Turnover
Inventory Turnover
Payables Turnover
6.03
4.27
Receivable Conversion Period
Inventory Conversion Period
Payment Deferral Period
Cash Conversion Cycle
6.16
3.92
11.77
5.91
3.83
10.77
58
92
31
120
61
94
33
122
Source: 2012 10-K
INTRODUCTION
COMPANY
INDUSTRY
VALUATION
9
Company Profile — Competitive Strengths
Strengths
Weaknesses
Diversified portfolio catering to large customer base
Revenues dependent on franchisees
Strong and effective distribution network
Heavily dependent on credit risk of customers
Attractive dividend yield
Significant dependence on European market
Strong and constant innovation
Stable supply of short-term raw materials
Opportunities
Threats
Rising demand for power and hand tools in the US
Intense competition
Growing global automotive aftermarket
Exposure to commodity price fluctuations
Repair industries develop in emerging markets
Financial regulatory changes
Expand services adjacent to existing markets
Increased costs due to new compliance and
environmental regulations
Extend to critical industries outside of vehicle repair
Source: Snap-On 2012 10-K, Company Annual Report, DataMonitor Snap-On Report
INTRODUCTION
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INDUSTRY
VALUATION
10
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
11
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
12
GLOBAL OUTLOOK
Expected Global Trends
Future Growth Drivers
• Robust consumer demand is expected to
• Increased in new mobile lead to increase in
support increased production in North
America at a moderate pace
more tools usage
• The number of current mobile in use is
• Macro economic uncertainties affecting
production in Europe
large enough to support sale
• Increase in purchasing power lead to using
• Continued high expected growth in
more professional tools
emerging markets
Source: DataMonitor Snap-On Report, Company 2012 10-K
INTRODUCTION
COMPANY
INDUSTRY
VALUATION
13
EXPOSURE TO STEEL PRICE FLUCTUATION
Steel is the principal raw material
LME 3-Mo. Steel
(USD/MT)
$800
$700
$600
$500
$400
$300
$200
$100
$0
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Source: Bloomberg
INTRODUCTION
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INDUSTRY
VALUATION
14
EXPOSURE TO CONSUMER CREDIT RISK
Slowdown in global economy can adversely affect the revenue collection
INTRODUCTION
COMPANY
INDUSTRY
VALUATION
15
OTHER MACROECONOMIC INDICATORS
Annualized US Auto Sales / Parts & Tire Sales
20
US Auto Sales (LHS)
Parts & Tire Store Sales (RHS)
7.5
US Unemplyment & Disposable Personal Income (Billion)
11%
$13,000
Disposable Income (RHS)
17.5
Unemployment (LHS)
10%
$12,500
7
9%
15
12.5
6.5
$12,000
8%
$11,500
7%
10
6
7.5
5
5.5
$11,000
6%
5%
$10,500
4%
$10,000
Source: Bloomberg
INTRODUCTION
COMPANY
INDUSTRY
VALUATION
16
STOCK PERFORMANCE
Source: Yahoo! Finance
INTRODUCTION
COMPANY
INDUSTRY
VALUATION
17
SNAP-ON TOTAL SHAREHOLDER RETURN (1)
Notes:
1Assumes $100 was invested on Dec. 31, 2007, and that dividends were reinvested quarterly
2Company’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.
3Peer 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
18
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
19
Valuation — Trading Comparables
Enterprise Value /
Com pany Nam e
EBITDA
Price /
EBIT
EPS
Tangible BV
NTM Enterprise Value
Forw ard Total
Forw ard
Revenue
EBITDA
NTM Forw ard
P/E
Snap-On Inc. (SNA)
9.7x
11.1x
16.4x
2.7x
1.81x
9.0x
15.00x
Stanley Black & Decker, Inc. (SWK)
9.6x
13.1x
15.0x
1.9x
1.37x
8.7x
14.40x
Genuine Parts Company (GPC)
10.8x
11.9x
18.6x
4.0x
0.83x
9.3x
17.30x
LKQ Corp (LKQ)
14.9x
17.3x
25.0x
3.3x
1.62x
12.6x
20.50x
Danaher Corporation (DHR)
10.8x
13.3x
18.0x
NM
2.19x
10.0x
17.81x
Emerson Electric Co. (EMR)
8.4x
10.3x
16.0x
NM
1.57x
7.7x
19.19x
New ell Rubbermaid Inc. (NWL)
8.3x
10.2x
38.8x
NM
1.25x
8.1x
18.46x
Pentair Ltd. (PNR)
12.2x
15.5x
NM
NM
1.41x
9.2x
NM
SPX Corporation (SPW)
10.1x
13.0x
21.0x
NM
0.94x
9.6x
13.92x
W.W. Grainger, Inc. (GWW)
11.6x
13.0x
21.4x
6.4x
1.55x
9.8x
23.71x
High
14.9x
17.3x
38.8x
6.4x
2.2x
12.6x
23.7x
Low
8.3x
10.2x
15.0x
1.9x
0.8x
7.7x
13.9x
Mean
10.7x
13.1x
21.7x
3.9x
1.4x
9.5x
18.2x
Median
10.8x
13.0x
19.8x
3.7x
1.4x
9.3x
18.1x
Snap-On Inc. (NYSE: SNA)
Implied Price_Mean
Implied Price_Median
LTM EBITDA
593.1
$109.38
$109.52
LTM EBIT
516.4
$115.76
$115.38
LTM Diluted
EPS
5.25
$114.23
$104.11
LTM Tangible
BV/Share
34.05
$132.89
$124.80
NTM Revenue /
Share
57.84
$81.81
$81.55
NTM EBITDA
618.5
$100.33
$98.71
Source: Capital IQ
INTRODUCTION
COMPANY
INDUSTRY
VALUATION
NTM EPS
5.27
$95.75
$95.62
20
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 Range
$56.88
$85.50
$81.67
DCF
$117.59
•
•
52-week high: $56.88
52-week low: $85.50
•
2.5%-3.5%Perpetuity
growth rate
8.57% - 10.57% WACC
•
•
Trading
$79.01
15.0x – 21.7x LTM EPS of
5.25
$114.23
Price/LTM EPS
$50
INTRODUCTION
$75
COMPANY
$100
INDUSTRY
$125
VALUATION
21
Valuation — WACC Analysis
WACC Calculation
Capital Structure
Total Market Value of Equity
Total Debt
4,769
976
Total Capitalization
5,745
Debt-to-Total Capitalization
16.98%
Equity-to-Total Capitalization
83.02%
Beta
1.36
Risk-Free Rate
1.78%
Market Risk Premium
7.00%
Cost of Equity (CAPM)
11.30%
Cost of Debt
Tax Rate
1.60%
32%
After-tax Cost of Debt
1.09%
WACC
9.57%
Source: Bloomberg
INTRODUCTION
COMPANY
INDUSTRY
VALUATION
22
VALUATION — SNAP-ON SANS FINANCIAL SERVICES
Fiscal Year Ended on December 29,
($ in millions)
2013E
2014E
2015E
2016E
2017E
Revenues
3,161
3,365
3,543
3,690
3,800
(1,681)
(1,790)
(1,884)
(1,963)
(2,021)
1,480
1,575
1,658
1,727
1,779
416
443
467
486
500
(124)
(132)
(139)
(145)
(149)
292
311
327
341
351
COGS
Gross Profit
EBIT
Less: Income Taxes @ 32%
EBIAT
Add: Depreciation & Amortization
Less: Capital Expenditures
Less: Increase In NWC
Unlevered Free Cash Flow
72
76
80
84
86
(72)
(76)
(80)
(84)
(86)
52
(30)
(22)
(14)
(5)
344
281
305
327
347
Terminal Growth Rate
3.00%
Terminal Value
5,437
Discount Rate
9.57%
Implied Enterprise Value
4,671
WACC
SNA Fair Value (before Financial Services) Sensitivity Analysis
Terminal Growth Rate
81.45
2.0%
2.5%
3.0%
3.5%
7.57%
$81.45
$81.45
$81.45
$81.45
Enterprise Value
4.0%
$81.45
8.57%
$81.45
$81.45
$81.45
$81.45
$81.45
9.57%
$81.45
$81.45
$81.45
$81.45
$81.45
10.57%
$81.45
$81.45
$81.45
$81.45
$81.45
11.57%
$81.45
$81.45
$81.45
$81.45
$81.45
INTRODUCTION
COMPANY
4,678
Less: Debt
(143)
Add: Cash
211
Implied Equity Value
4,746
Shares Outstanding
Fair Value before Financial Services
Current Stock Price
INDUSTRY
58.271
$81.45
$81.23
VALUATION
23
VALUATION — FINANCIAL SERVICES
Fiscal Year Ended on December 29,
($ in millions)
2013E
2014E
2015E
2016E
2017E
Net Income
47
58
68
77
81
% Margin
22.2%
22.3%
22.4%
22.4%
22.4%
Less: Change in BV of Equity
(47)
(58)
(68)
(77)
(81)
Other comprehensive Income
-
-
-
-
-
115
137
153
Free Cash Flow
93
163
Terminal Growth Rate
3.00%
Terminal Value
2,019
Discount Rate (Cost of Equity)
11.30%
Enterprise Value
1,653
WACC
Financial Services Fair Value Sensitivity
Terminal Growth Rate
$14.24
2.0%
2.5%
3.0%
3.5%
Enterprise Value
4.0%
9.30%
$19.42
$21.39
$23.68
$26.36
$29.54
10.30%
$15.19
$16.65
$18.31
$20.21
$22.41
11.30%
$11.88
$12.99
$14.24
$15.64
$17.24
12.30%
$9.21
$10.08
$11.04
$12.12
$13.32
13.30%
$7.02
$7.71
$8.48
$9.32
$10.25
1,653
Less: Debt
(827)
Add: Cash
3
Implied Equity Value
830
Shares Outstanding
Fair Value (FinCO)
58.271
$14.24
Fair Value (FinCO)
$14.24
Fair Value before Financial Services
$81.45
Total Fair Value
$95.69
WACC
Total Fair Value Sensitivity
$95.69
7.57%
2.0%
$95.69
Terminal Growth Rate
2.5%
3.0%
3.5%
$95.69
$95.69
$95.69
4.0%
$95.69
8.57%
$95.69
$95.69
$95.69
$95.69
$95.69
9.57%
$95.69
$95.69
$95.69
$95.69
$95.69
10.57%
$95.69
$95.69
$95.69
$95.69
$95.69
11.57%
$95.69
$95.69
$95.69
$95.69
$95.69
INTRODUCTION
COMPANY
Current Stock Price
% Discount
INDUSTRY
$81.23
18%
VALUATION
24
RISKS & DECISION DRIVERS
Risks
(1)
Earnings release in 2 days
(2)
Competitive Market Segment
(3)
Macroeconomic Landscape
Decision Drivers
(1)
GICS Diversification
(2)
Stronger growth compared to peers
(3)
DCF Valuation
INTRODUCTION
COMPANY
INDUSTRY
VALUATION
RECOMMENDATION
Buy 100 shares @ Market Price
Illustrative purposes:
100 * $81.23 = $8,123
INTRODUCTION
COMPANY
INDUSTRY
VALUATION
Snap-On Incorporated
Questions?
27