CFA Institute Research Challenge of Western New York 2016 University at Buffalo

1. CFA Institute Research Challenge
Canisius College, Buffalo, NY
University at Buffalo
Buffalo, NY
Brandon Pritchard
Vaishnavi Kulkarni
Syed Daniyal Adil
Early Salim
Ke Guo

2. Executive Summary
Highlights
• #1 manufacturer of hoists, tire shredders, cranes,
rigging tools and digital power control systems in
the US
• Headquartered in Getzville
• Hoists make up 58.9% of revenue
• Investment in R&D and new acquisitions
(Magnetech in 2015)
• Strong management and independent board
Market Profile
Closing price (02/15/2017) $27.14
Market Cap $549.52M
52 week range $13.19 - $29.23
Avg. Volume 138,925
Target Price $25.73
Beta (5 year trailing) 1.31
Dividend Yield 0.97%
P/E Ratio (TTM) 28.27
EPS (TTM) 0.98

3. Geographical sales distribution

4. Corporate Governance
• Structure of Board of Directors
• Compensation of Executives
• Rights of Shareholders

5. Industry Overview
Economic indicators that affect the
Industrial Sector as a whole:
• GDP growth
• Capacity utilization
• Industrial production

6. Factors influencing the growth in material handling industry
• Productivity
• Safety
• Modernization and upgrade of existing equipment
• Conversion to wireless applications

7. Competitive Positioning
• Fragmented market leads to
competition.
• High barriers to entry in the overseas
market.
• Consolidation of channel-partners
Suppliers and buyers

8. • US Market leader
• Diverse line of products
• Differentiation from competition
• Market products directly to end users through 30
independent wholly owned brands
• Abell-Howe (jib cranes), CES (cranes), PFAFF
(Germany; rail systems, industry solutions),
Yale Germany (Industrial components)
Product Category U.S.
Market
Share
U.S. Market
Position
Hoist, Trolleys and
Components (1)
47.5% #1
AC and DC Material
Handling Drives (5)
57.5% #1
Screw Jacks (2) 37.5% #1
Tire Shredders (3) 52.5% #1
Elevator DC Drives
(5)
67.5% #1
Jib Cranes (4) 27.5% #1

9. Financial Analysis:
Profitability
● Revenue increases year
to year
● Net Income decreased
in 2016
ProfitabilityRatios 2015 2016 2017E 2018E 2019E
Gross Profit Margin 31.33% 31.36% 30.64% 30.64% 30.64%
Net Profit Margin 4.69% 3.28% 4.71% 4.71% 4.71%
Return on Assets 4.80% 2.53% 3.40% 3.18% 2.98%
Return on Equity 10.12% 6.84% 8.68% 8.12% 7.60%
Operating Profit Margin 6.60% 8.82% 7.56% 7.56% 7.56%
$-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
2014 2015 2016 2017e 2018e 2019e
Revenue, COGS, and Gross Profit
Revenue Cost of products sold Gross Profit
$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$-
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
2014 2015 2016 2017e 2018e 2019e
Net Income and Total Equity
Total Shareholder Equity Net Income

10. Financial Analysis:
Debt
• Incurred debt from acquisitions
• Higher leverage
• Cash and Cash Equivalents small
percentage of net debt
$-
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
2014 2015 2016 2017e 2018e 2019e
Total Debt, Net Debt, and Cash & Cash
Equilvalents
Total Debt Net Debt Cash and Cash Equilvalents
$-
$50,000
$100,000
$150,000
$200,000
$250,000
2014 2015 2016 2017e 2018e 2019e
Short Term and Long Term Debt
Long-Term Debt Short-Term Debt

11. Financial Analysis: Quality of Earnings
● Cash Realization increased greatly
● Asset Replacement Ratio decreasing
● EPS dropped
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
2014 2015 2016 2017e 2018e 2019e
Net Income and EPS
Net Income Earnings per Share
QualityofEarnings 2015 2016 2017E 2018E 2019E
AssetReplacementRatio 1.18x 1.08x 0.97x 0.91x 0.85x
CashRealizationRatio 1.41x 2.69x 1.61x 1.61x 1.61x
EarningsperShare $1.36 $0.98 $1.41 $1.42 $1.43

12. Valuation of CMCO
Discounted cash flow
Relative valuation
Monte Carlo simulation
Columbus McKinnon Corporation – Price Target
Discounted cash flow Relative valuation
55% 45%

13. Assumptions of discounted cash flow
• Revenue growth: average growth rate of 3.1%.
• Gross margin is maintained at 30%.
• Operating expenses to revenue is maintained at 20%.
• Depreciation to revenue is maintained at 2%.
• Capital expenditure to revenue is maintained at an average of
2.6%.
• Working capital to revenue is maintained at an average of 17%.
• Terminal growth rate is assumed to be 2%.

14. Weighted average cost of capital
Weighted average cost of capital (WACC)
Cost of equity 10%
Cost of debt (pre-tax) 5%
Tax rate 30%
After tax cost of debt 3%
Market value of equity 547,019,200
Market value of debt 318,100,000
Value of firm 865,119,200
E/V 63%
D/V 37%
WACC 7%
Cost of equity
Risk-free rate 3%
Equity risk premium 5.48%
Beta* 1.31
Cost of equity 10%
*five-year trailing
Cost of debt
Pre-tax cost of debt 4.54%
Tax rate 30%
After-tax cost of debt 3%

15. Assumptions of market model
Company Name
TEV/LTM
EBITDA
Actuant Corporation (NYSE:ATU) 14.5
Chart Industries, Inc. (NasdaqGS:GTLS) 10.4
Empire Industries Ltd. (TSXV:EIL) 7.34
Hillenbrand, Inc. (NYSE:HI) 11.1
Linamar Corporation (TSX:LNR) 5.04
Manitex International, Inc. (NasdaqCM:MNTX) 30.4
Paragon Technologies, Inc. (OTCPK:PGNT) 2.28
Regal Beloit Corporation (NYSE:RBC) 9.41
Terex Corporation (NYSE:TEX) 13.0
Average 11.5
Source: S&P Capital IQ
Comparable companies valuation
USD millions Low High
EV/LTM EBITDA 11.00 12.00
LTM EBITDA 68.47 68.47
Enterprise value 752.97 821.45
Debt (317.79) (317.79)
Cash 45.71 45.71
Equity value 480.89 549.36
Shares outstanding 20.23 20.23
Value per share 23.77 27.16
Source: Capital IQ

16. Sensitivity analysis on sales growth rate using monte
carlo simulation

17. Valuation of CMCO
Valuation approach Low High Weights
Discounted cash flow 25.25 26.63 55%
Relative valuation 23.77 27.16 45%
Price target 24.59 26.87

18. Total Revenue 1 Yr
Growth % (USD)
2013 2014 2015 2016
Industrial Machinery (3.6%) (2.0%) (2.5%) (2.4%)
CMCO 0.9% (2.3%) (0.6%) 3.0%
Adverse changes in
economic conditions
General
decrease
in
product
demand
The ability
to obtain
financing
Source: Capital IQ

19. Currency Exchange Loss Mitigation
• Transaction currency denominated in U.S.
Dollar
• Derivatives
Source: Capital IQ

20. customer service and
support
product availability
performance
functionality
brand reputation
reliability and price
Competition Risk
Source: Capital IQ

21. Summary
Forward looking
• Further Acquisitions
• New development of products
• Growth in foreign market
• Strong US market share
Concerns
• Strong competition
• Cyclical business cycle
• Maturing company
• FX risk
• Interest rate risk
• Political risk
• Acquisition risk

22. Recommendation
Current price (02/15/2017):
$27.14
Target price: $25.73
Sell

23. Questions?

24. Income statement
2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E
Revenue 591.95 597.26 583.29 579.64 597.10 618.00 639.63 660.74 680.56 698.94 717.81
Cost of Sales 434.23 423.03 402.24 396.86 410.22 432.60 447.74 462.52 476.39 489.26 502.47
Gross profit 157.72 174.23 181.05 182.78 186.88 185.40 191.89 198.22 204.17 209.68 215.34
S G & A 111.54 117.88 123.06 124.69 125.62 123.60 127.93 132.15 136.11 139.79 143.56
Depreciation 9.61 9.64 10.47 10.78 13.42 12.36 12.79 13.21 13.61 13.98 14.36
Operating income 44.11 54.37 56.01 55.82 48.24 55.00 57.57 56.82 59.89 59.41 61.01
EBITDA 53.72 64.01 66.47 66.61 61.66 67.36 70.36 70.04 73.50 73.39 75.37
Tax 28% 28% 28% 28% 28% 28% 28% 28% 28% 28% 28%
Revenue growth 1% -2% -1% 3% 3.5% 3.5% 3.3% 3.0% 2.7% 2.7%
EBITDA growth 19% 4% 0% -7% 9% 4% 0% 5% 0% 3%
Gross margin 27% 29% 31% 32% 31% 30% 30% 30% 30% 30% 30%
Operating margin 7.5% 9.1% 9.6% 9.6% 8.1% 8.9% 9.0% 8.6% 8.8% 8.5% 8.5%
SG&A/Revenue 19% 20% 21% 22% 21% 20% 20% 20% 20% 20% 20%
Depreciation/Revenue 1.6% 1.6% 1.8% 1.9% 2.2% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

25. Balance sheet-working capital and net
debt/cash
Working capital
2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E
Revenue 591.95 597.26 583.29 579.64 597.10 618.00 639.63 660.74 680.56 698.94 717.81
WC/Sales 17% 18% 21% 20% 15% 18% 18% 17.5% 16% 16% 16%
Change in working capital 4.84 16.87
(10.94) (25.40)
22.63 3.89 0.50
(6.74)
2.94 3.02
Net debt
As on Sept
2016
Long-Term Debt 197.19
Capital Leases
Pension & Other Post-Retire. Benefits -
Total Cash & ST Investments (45.71)
Net debt/(cash) 151.49
Source: S&P Capital IQ

26. Cash flow statement-capital expenditure
Capital expenditure
2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E
Capital expenditure
13.80 14.90 20.80 17.20 22.30 15.45 15.99 17.18 17.69 19.57 20.10
Revenue
591.95 597.26 583.29 579.64 597.10 618.00 639.63 660.74 680.56 698.94 717.81
Capital expenditure/revenue 2.3% 2.5% 3.6% 3.0% 3.7% 2.5% 2.5% 2.6% 2.6% 2.8% 2.8%

27. Discounted cash flow
2017E 2018E 2019E 2020E 2021E 2022E
EBITDA 67.36 70.36 70.04 73.50 73.39 75.37
Depreciation 12.36 12.79 13.21 13.61 13.98 14.36
Tax 28% 28% 28% 28% 28% 28%
Change in working capital 22.63 3.89 0.50 (6.74) 2.94 3.02
Capital expenditure 15.45 15.99 17.18 17.69 19.57 20.10
Free cash flow to firm 13.88 34.36 36.45 45.78 34.24 35.17
PV 13.88 32.11 31.84 37.37 26.12 25.07
Terminal value 717.43
Present value of TV 511.52
2017E 2018E 2019E 2020E 2021E 2022E
Free cash flow to firm 13.88 34.36 36.45 45.78 34.24 35.17
Terminal value 717.43
Present value of FCFF
(low)
13.88 31.96 31.54 36.85 25.64 24.50
Present value of TV (low) 499.73
Present value of FCFF
(high)
13.88 32.26 32.14 37.90 26.62 25.67
Present value of TV (high) 523.64

28. Weighted average cost of capital-Cost of debt
Cost of Debt
Input in USD millions
Operating income 12.6
Interest expense 2.5
Coverage ratio 5.04
Rating based on coverage ratio* B1
Default spread** 1.75%
Risk-free rate as of Dec 31st
Treasury 20 yr
2.79%
Pre-tax cost of debt 4.54%
Tax rate 30%
After-tax cost of debt 3%
*Professor Aswath Damodaran, New York University
**Professor Aswath Damodaran, New York University
Market value of debt in USD millions
Long term liability 197.2
Capital lease 0.3
Other non current liability 120.6
market value of debt 318.1

29. Comparable companies
Company Name Business Description
Total
Enterprise
Value
LTM EBITDA
TEV/LTM
EBITDA
Actuant Corporation (NYSE:ATU) Actuant Corporation designs, manufactures, and distributes a range of industrial products and
systems worldwide. It operates through three segments: Industrial, Energy, and Engineered
Solutions.
1,984.4 136.5 14.5
Chart Industries, Inc. (NasdaqGS:GTLS) Chart Industries, Inc. manufactures and sells engineered equipment for the industrial gas,
energy, and biomedical industries worldwide. The company operates in three segments:
Energy & Chemicals (E&C), Distribution & Storage (D&S), and BioMedical.
1,140.6 109.4 10.4
Empire Industries Ltd. (TSXV:EIL) Empire Industries Ltd. designs, fabricates, manufactures, erects, and sells proprietary
engineered products worldwide. Its Media-based Attractions segment designs and
manufactures complex ride systems, telescopes, and custom machinery and equipment.
33.0 4.71 7.34
Hillenbrand, Inc. (NYSE:HI) Hillenbrand, Inc. operates as a diversified industrial company worldwide. The company
operates through two segments, Process Equipment Group and Batesville. The Process
Equipment Group segment designs, engineers, manufactures, markets, and services process
and material handling equipment and systems for various industries, including plastics,
processed food, chemicals, fertilizers, industrial minerals, mining, energy, wastewater
treatment, and forest products.
3,009.1 269.9 11.1
Linamar Corporation (TSX:LNR) Linamar Corporation manufactures and sells precision metallic components and aerial work
platforms in Canada, North and South America, the European Union, and the Asia Pacific. It
operates through two segments, Powertrain/Driveline and Industrial.
3,867.6 777.5 5.04
Manitex International, Inc. (NasdaqCM:MNTX) Manitex International, Inc. provides engineered lifting and loading products worldwide. The
company operates through Lifting Equipment, ASV, and Equipment Distribution segments.
304.7 15.9 30.4
Paragon Technologies, Inc. (OTCPK:PGNT) Paragon Technologies, Inc., through its subsidiary, SI Systems, LLC, provides various material
handling systems, technologies, products, and services for material flow applications in North
America.
1.05 0.462 2.28
Regal Beloit Corporation (NYSE:RBC) Regal Beloit Corporation, together with its subsidiaries, designs, manufactures, and sells
electric motors, electrical motion controls, and power generation and transmission products in
the United States and internationally.
4,498.1 478.1 9.41
Terex Corporation (NYSE:TEX) Terex Corporation operates as a lifting and material handling solutions company. Its Aerial
Work Platforms segment designs, manufactures, services, and markets aerial work platform
equipment, telehandlers, and light towers, as well as related components and replacement
parts under the Terex and Genie names.
4,893.4 376.9 13.0
Average 11.5
Source: S&P CapitalIQ