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Hi, my name is Brett Kearney and I am a research analyst at Gabelli Funds. Today, I am going to be speaking with you about some of the companies in the flow control equipment sector.
This sector encompasses a broad range of businesses and applications that move, measure, mix, control, meter, and dispense a variety of fluids (such as food ingredients, pharmaceutical compounds, chemicals, wastewater, oil, and natural gas liquids). These businesses, in general, benefit from several attractive characteristics, including: First, solid profitability – with EBITDA margins in the mid-teens to high-20% range; Second, pricing power due to niche market focus and low cost relative to the overall system that they are a part of (for example, a $30,000 pump is trivial relative to the cost of constructing and operating a multi-billion dollar biopharma, chemical, or refining plant where a single hour of unplanned downtime can cost its end user up to $1 million of lost EBITDA); Third, high customer switching costs due to mission-critical functionality; and Fourth, low capital intensity with capital expenditures as a percentage of sales generally below 3%.
A few companies within this sector enter the current global recession particularly well-prepared from both a financial and organizational standpoint. Each of Graco, IDEX, ITT, Gorman-Rupp, and Flowserve have strong balance sheets and all maintained positive free cash flow during the 2008-2009 recession. These companies also benefit from exceptional leadership and organizational agility that should enable them to respond to customers’ needs in dynamic and turbulent markets and ultimately emerge with greater market share in the eventual recovery.
We look forward to keeping you abreast of these companies progress in coming months and we thank you for listening in with us today. Have a great day!
