Met-Pro Corporation (MPR, Financial) is a leading niche-oriented global provider of product recovery, pollution control, fluid handling and filtration solutions. The company’s diverse and synergistic solutions and products address the world’s growing need for clean air and water, reduced energy consumption and improved operating efficiencies. Through its global sales organization, internationally recognized brands, and operations in North America, South America, Europe and The People's Republic of China, Met-Pro’s solutions, products and systems are sold to customers and markets around the world. The company has a large base of installed equipment and derives approximately 40% of its revenues from recurring sales of parts and consumables. Of fiscal year 2012 revenue, 43.5% and 33.2% is generated from product recovery/pollution control division and fluid handling division respectively. MPR earns 27.9% of its fiscal year 2012 revenue overseas, outside the U.S.
The product recovery/pollution control division provides solutions and manufactures products for the purification of air or liquids. Many of these products are custom designed and sold worldwide through company sales personnel and a network of manufacturer’s representatives. The fluid handling division manufactures high quality horizontal, vertical, and in-tank centrifugal pumps that handle corrosive, abrasive and high temperature liquids. This combination of pump types and configurations provides products that excel in applications requiring corrosion resistance used in many industrial and commercial applications.
Valuation
MPR is trading at 1.53x P/B, below its 2009 global financial crisis valuation low of 1.67x P/B. Its previous historical valuation lows was 1.3x P/B in 2005. In terms of earnings-based multiples, TAL trades at 8.1x 12 months trailing EV/EBITDA and 18.3x P/E, respectively.
Financial And Business Risks
MPR has a net cash financial position, with gross debt-to-equity ratio at 3.59%. MPR's working capital position has shown improvement in the trailing 12 months. Receivable days have fallen from an average of 75 days from fiscal year 2007 to 2010 to 59 days currently. Inventory days have also registered a sharp drop from an average of 110 days from fiscal year 2007 to 2010 to 90 days now.
Given the nature of the industry, MPR's revenues are not recurring, but typically earned on a project-by-project basis. Customers do not enter into long-term contracts, but rather issue purchase orders which are subject to negotiation and acceptance. Additionally, customers typically have the right to cancel a given order, although MPR claims it has historically experienced a very low rate of cancellation.
MPR purchases electric power and other raw materials used in the manufacturing of products from outside sources. MPR has decreased raw material costs in recent years with more centralized purchasing, but it is still susceptible to the volatility of raw materials and power costs.
MPR had to restate prior period financial statements in 2008 in connection with the timing of recognition of certain sales and income in 2008. The financial statement errors were the result of unauthorized actions by one non-officer level sales employee, in violation of the company’s policies, including its revenue recognition policy. In October 2011, Gary Morgan, the company's former chief financial officer and director resigned to pursue personal interests.
Business Quality and Capital Allocation
MPR serves over 8,000 active customers across a well-diversified cross-section of industries including many Fortune 1000 companies, with no single customer accounting for more than 10% of MPR's business. MPR would not be materially adversely affected by the loss of any single customer.
MPR has sustained attractive gross margins and positive operating cash flow even as the mix of products and the impact of volatile commodity costs have shifted from quarter to quarter. MPR has recorded a gross profit margin of at least 31% and positive operating cash flows for the past 10 years.
MPR continues to experience growth in both geographical and business segments. It grew international sales by 25% to $28 million in fiscal year 2012 and also made new inroads in the aerospace market and South American mining market. MPR received its first large order from a multi-national aerospace corporation and received another large order in the Bolivia mining market.
MPR boosts an impressive track record of 21 straight years of cash dividends and 37 consecutive years of either cash or stock dividends. In addition, it has increased dividends every single year for the past decade. It achieved a 58.6% dividend payout ratio and a dividend yield of 3.3% for fiscal year 2012. Dividends are paid out quarterly. For the past three years, dividend payout ratios have exceeded 57%.
Management
Management grew the book value per share of MPR by a 10-year CAGR of 5.1%. Key executive compensation of US$2.3 million in fiscal year 2012 represents 32% of fiscal year 2012 net income of US$7.1 million. Share options numbering 832,075 remain outstanding.
Conclusion
Notwithstanding the accounting issue in 2008, MPR is attractively valued at 1.53x P/B, below its 2009 global financial crisis valuation low of 1.67x P/B. Thirty-seven consecutive years of either cash or stock dividends and a decade of increasing dividends are the icing on the cake.
Disclosure
The author does not have a position in any of the stocks mentioned.
The product recovery/pollution control division provides solutions and manufactures products for the purification of air or liquids. Many of these products are custom designed and sold worldwide through company sales personnel and a network of manufacturer’s representatives. The fluid handling division manufactures high quality horizontal, vertical, and in-tank centrifugal pumps that handle corrosive, abrasive and high temperature liquids. This combination of pump types and configurations provides products that excel in applications requiring corrosion resistance used in many industrial and commercial applications.
Valuation
MPR is trading at 1.53x P/B, below its 2009 global financial crisis valuation low of 1.67x P/B. Its previous historical valuation lows was 1.3x P/B in 2005. In terms of earnings-based multiples, TAL trades at 8.1x 12 months trailing EV/EBITDA and 18.3x P/E, respectively.
Financial And Business Risks
MPR has a net cash financial position, with gross debt-to-equity ratio at 3.59%. MPR's working capital position has shown improvement in the trailing 12 months. Receivable days have fallen from an average of 75 days from fiscal year 2007 to 2010 to 59 days currently. Inventory days have also registered a sharp drop from an average of 110 days from fiscal year 2007 to 2010 to 90 days now.
Given the nature of the industry, MPR's revenues are not recurring, but typically earned on a project-by-project basis. Customers do not enter into long-term contracts, but rather issue purchase orders which are subject to negotiation and acceptance. Additionally, customers typically have the right to cancel a given order, although MPR claims it has historically experienced a very low rate of cancellation.
MPR purchases electric power and other raw materials used in the manufacturing of products from outside sources. MPR has decreased raw material costs in recent years with more centralized purchasing, but it is still susceptible to the volatility of raw materials and power costs.
MPR had to restate prior period financial statements in 2008 in connection with the timing of recognition of certain sales and income in 2008. The financial statement errors were the result of unauthorized actions by one non-officer level sales employee, in violation of the company’s policies, including its revenue recognition policy. In October 2011, Gary Morgan, the company's former chief financial officer and director resigned to pursue personal interests.
Business Quality and Capital Allocation
MPR serves over 8,000 active customers across a well-diversified cross-section of industries including many Fortune 1000 companies, with no single customer accounting for more than 10% of MPR's business. MPR would not be materially adversely affected by the loss of any single customer.
MPR has sustained attractive gross margins and positive operating cash flow even as the mix of products and the impact of volatile commodity costs have shifted from quarter to quarter. MPR has recorded a gross profit margin of at least 31% and positive operating cash flows for the past 10 years.
MPR continues to experience growth in both geographical and business segments. It grew international sales by 25% to $28 million in fiscal year 2012 and also made new inroads in the aerospace market and South American mining market. MPR received its first large order from a multi-national aerospace corporation and received another large order in the Bolivia mining market.
MPR boosts an impressive track record of 21 straight years of cash dividends and 37 consecutive years of either cash or stock dividends. In addition, it has increased dividends every single year for the past decade. It achieved a 58.6% dividend payout ratio and a dividend yield of 3.3% for fiscal year 2012. Dividends are paid out quarterly. For the past three years, dividend payout ratios have exceeded 57%.
Management
Management grew the book value per share of MPR by a 10-year CAGR of 5.1%. Key executive compensation of US$2.3 million in fiscal year 2012 represents 32% of fiscal year 2012 net income of US$7.1 million. Share options numbering 832,075 remain outstanding.
Conclusion
Notwithstanding the accounting issue in 2008, MPR is attractively valued at 1.53x P/B, below its 2009 global financial crisis valuation low of 1.67x P/B. Thirty-seven consecutive years of either cash or stock dividends and a decade of increasing dividends are the icing on the cake.
Disclosure
The author does not have a position in any of the stocks mentioned.
