Snap-On

SNAP-ONRCMP Investment Presentation

1

Richie HartzHa Da Jang Diana Yang

April 16, 2013

Diana YangIris ZhangIshan PrasadHexiyou Xu

AGENDA

2

INTRODUCTIONINTRODUCTION COMPANYCOMPANY INDUSTRYINDUSTRY VALUATIONVALUATION

Introduction

Company Overview

Industry Overview

Stock Performance

Financial Analysis

Valuation

Recommendation

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

3Source: Snap-On Inc. 2012 10-K


COMPANY HISTORY

4Source: Snap-On Inc. official website


1920: Snap-On Wrench Company founded by William Seidemann and Joseph Johnson

1950s: Expanded concept of walk-in vans and pioneered franchisee van channel

2005: Entered India

1978:Listed on NYSE

1931: Entered international arena

1956: Acquired Joseph P Weidenhoff Company, manufacturer of timing and analysis equipment

1920 1950s 1978 20051931 1956

SALES BREAKDOWN

5

Geographic Business Segment Product

Source: Snap-On Inc. 2012 10-K

• 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


MORE ABOUT SNAP-ON

6Source: Snap-On Inc. 2012 10-K

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


End Markets•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

PRODUCT SEGMENTS

7Source: Snap-On Inc. official website


FY2012 Revenues by Product Segment

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)

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)

Equipment:Air compressors/Air processing equipmentBattery charging and testingCooling systemEngine serviceExhaustTire and wheelPaint spray

HISTORICAL FINANCIALS

8


Revenues Operating Earnings

Capital Expenditures Operations before FinCo - Operating Margins (%)

Source: Company 2012 10-K

KEY FINANCIAL RATIOS

9

2010A 2011A 2012A

Profitablility RatiosDividend Yield 2.2% 2.5% 1.8%Return on Equity (ROE) 13.3% 17.9% 16.8%Return on Asset (ROA) 6.2% 9.5% 10.2%Profit Margin 12.1% 13.5% 13.9%

Liquidity RatiosCurrent Ratio 1.91 2.20 2.37

Quick Ratio 1.46 1.50 1.63

Leverage RatiosDebt to Equity 30% 17% 8%Interest Coverage 5.83 6.40 7.59

Operating Efficiency RatiosReceivables Turnover 6.03 6.16 5.91

Inventory Turnover 4.27 3.92 3.83

Payables Turnover 11.77 10.77

Receivable Conversion Period 58 61 Inventory Conversion Period 92 94 Payment Deferral Period 31 33 Cash Conversion Cycle 120 122

Source: 2012 10-K


Company Profile — Competitive Strengths

10

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

INTRODUCTIONINTRODUCTION COMPANYCOMPANY INDUSTRYINDUSTRY VALUATIONVALUATIONSource: Snap-On 2012 10-K, Company Annual Report, DataMonitor Snap-On Report

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

11Source: Snap-On 2012 10-K, Company Annual Report, DataMonitor Snap-On Report


Porter’s Five Forces

Threat of New Entrants: Low Lack of Industry experience/ know-how

Threat of Substitute Products: LowMatured industry with large competitors

Bargaining Power of Buyers: Moderate to HighPricing Pressures due to intense competition and high

consumer expectations

Bargaining Power of Sellers: ModerateHigh concentration of sellers, however subject to market prices

Intensity of Competition: HighLarge, established players dominating market

12


Small Tools & Accessories

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

GLOBAL OUTLOOK

13

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

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

INTRODUCTIONINTRODUCTION COMPANYCOMPANY INDUSTRYINDUSTRY VALUATIONVALUATIONSource: DataMonitor Snap-On Report, Company 2012 10-K

EXPOSURE TO STEEL PRICE FLUCTUATION

14

Steel is the principal raw material

INTRODUCTIONINTRODUCTION COMPANYCOMPANY INDUSTRYINDUSTRY VALUATIONVALUATIONSource: Bloomberg

EXPOSURE TO CONSUMER CREDIT RISK

15

Slowdown in global economy can adversely affect the revenue collection


OTHER MACROECONOMIC INDICATORS

16

INTRODUCTIONINTRODUCTION COMPANYCOMPANY INDUSTRYINDUSTRY VALUATIONVALUATIONSource: Bloomberg

STOCK PERFORMANCE

17Source: Yahoo! Finance


SNAP-ON TOTAL SHAREHOLDER RETURN (1)

18


Notes:1Assumes $100 was invested on Dec. 31, 2007, and that dividends were reinvested quarterly2Company’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

COMPARABLE STOCK PERFORMANCES

• GPC: Genuine Parts Company• DHR: Danaher• SWK: Stanley Black & Decker• SPW: SPX Corporation• GWW: W.W. Grainger

19Source: Yahoo! Finance


Valuation — Trading Comparables

20


Enterprise Value / Price / NTM Enterprise Value

Company Name EBITDA EBIT EPS Tangible BVForward Total

Revenue Forward EBITDA

NTM Forward 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

LTM EBITDA LTM EBIT LTM Diluted

EPS LTM Tangible

BV/Share NTM Revenue /

Share NTM EBITDA NTM EPS Snap-On Inc. (NYSE: SNA) 593.1 516.4 5.25 34.05 57.84 618.5 5.27Implied Price_Mean $109.38 $115.76 $114.23 $132.89 $81.81 $100.33 $95.75Implied Price_Median $109.52 $115.38 $104.11 $124.80 $81.55 $98.71 $95.62

Source: Capital IQ

MAKING THE NUMBERS WORK

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

21

52-Week Range

DCF

TradingPrice/LTM EPS

$50 $75 $100 $125

$56.88 $85.50

$81.67 $117.59

$79.01 $114.23

• 2.5%-3.5%Perpetuity growth rate

• 8.57% - 10.57% WACC

• 15.0x – 21.7x LTM EPS of 5.25

Current$81.23

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


Valuation — WACC Analysis

22


WACC Calculation

Capital Structure

Total Market Value of Equity 4,769

Total Debt 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 1.60%

Tax Rate 32%

After-tax Cost of Debt 1.09%

WACC 9.57%

Source: Bloomberg

VALUATION — SNAP-ON SANS FINANCIAL SERVICES

23


Fiscal Year Ended on December 29,

($ in mill ions) 2013E 2014E 2015E 2016E 2017E

Revenues 3,161 3,365 3,543 3,690 3,800

COGS (1,681) (1,790) (1,884) (1,963) (2,021)

Gross Profit 1,480 1,575 1,658 1,727 1,779

EBIT 416 443 467 486 500

Less: Income Taxes @ 32% (124) (132) (139) (145) (149)

EBIAT 292 311 327 341 351

Add: Depreciation & Amortization 72 76 80 84 86

Less: Capital Expenditures (72) (76) (80) (84) (86)

Less: Increase In NWC 52 (30) (22) (14) (5)

Unlevered Free Cash Flow 344 281 305 327 347

Terminal Growth Rate 3.00%

Terminal Value 5,437

Discount Rate 9.57%

Implied Enterprise Value 4,671

Enterprise Value 4,678

Less: Debt (143)

Add: Cash 211

Implied Equity Value 4,746

Shares Outstanding 58.271 Fair Value before Financial Services $81.45

Current Stock Price $81.23

VALUATION — FINANCIAL SERVICES

24

Fiscal Year Ended on December 29,

($ in mill ions) 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 - - - - -

Free Cash Flow 93 115 137 153 163

Terminal Growth Rate 3.00%

Terminal Value 2,019

Discount Rate (Cost of Equity) 11.30%



Less: Debt (827)

Add: Cash 3

Implied Equity Value 830

Shares Outstanding 58.271 Fair Value (FinCO) $14.24

Financial Services Fair Value Sensitivity Terminal Growth Rate

$14.24 2.0% 2.5% 3.0% 3.5% 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

WA

CC

Fair Value (FinCO) $14.24

Fair Value before Financial Services $81.45

Total Fair Value $95.69

Current Stock Price $81.23% Discount 18%


RISKS & DECISION DRIVERS

(1) GICS Diversification

(2) Stronger growth compared to peers

(3) DCF Valuation

(1) Earnings release in 2 days

(2) Competitive Market Segment

(3) Macroeconomic Landscape

Risks

Decision Drivers


RECOMMENDATION

Buy 100 shares @ Market Price

Illustrative purposes:100 * $81.23 = $8,123


Questions?

Snap-On Incorporated

27

Date post:	31-Dec-2015
Category:	Documents
Upload:	dylan-copeland
View:	18 times
Download:	0 times

Snap-On

Documents