Marquette Bmi

Badger Meter, Inc.

CFA Global Investment Research Challenge 2009

Marquette University

2

Recommendation SELLTarget Price $25 Per Share

Current Price $29 Per Share

Market Cap (Mil):

$428.17  52 WK H-L:

$62.74-17.58   FY Dec 2008A 2009E 2010E

Shares Out (Mil): 14.81

Institutional Holdings 72.99%

Revenue (Mil) $279.55 $258.19 $259.28

Float (Mil): 13.84 Insider Holdings 5.28%Net Income (Mil) $25.08 $19.18 $19.76

Avg. Daily Volume: 239,884 Return On Equity 24.71% EPS $1.72 $1.32 $1.36

TTM Dividend: $0.40 Debt To Common Equity 22.67% P/E 17x 22x 21x

Dividend Yield: 1.38%              

Source: Bloomberg, Team Projections

3

Presentation Outline

• Overview

• Revenue Assumptions

• Margin Analysis

• Valuation Methodology

4

Company SynopsisOverview

• Manufactures Fluid Meters

And Meter Reading

Technology

• Primary Customers Are

Utilities And Industrial

Companies

• $5.8 Billion Market

• Oligopolistic Industry

5

Overview

Competitive Dynamics

• Meter Manufacturing

∙ High Barriers To Entry

∙ Commoditized Product

• Meter Reading: AMR/AMI

∙ Fragmented Market

∙ High Margin Product

∙ Opportunity For DifferentiationSource: BMI Data

6

Utility Segment - Market Assessment

Revenue Assumptions

Source: BMI Data, Team Projections

$ In Millions

• Significant Factors

∙ Municipal Budget

∙ 2/3 Fall, 1/3 Spring

∙ Municipal Funding

∙ American Recovery And

Reinvestment Act Of 2009

• Implication

∙ Two Year Market Downturn

83% Of Total Revenue

7

Increased Funding Costs

Source: Bloomberg

Revenue Assumptions

AA 5yr Municipal Bonds Over 5yr Treasury Bonds

8

Utility Segment - Meter Sales

Revenue Assumptions

• New Meters (1/3 Sales)

∙ Water Shortages In 36 States

∙ 13M Unmetered Residential Units

• Replacement Meters (2/3 Sales)

∙ Average Cycle Is 15 Years

∙ Cycle DelaysSource: BMI Data

9

Utility Segment - AMR/AMI

• Pricing∙ High Price Point vs. Traditional Meters ($150 v. $30)∙ Delayed Technology Adoption

Revenue Assumptions

Source: BMI Data, Team Projections

10

Industrial SegmentRevenue Assumptions

∙ 25% International ∙ 75% Domestic

17% Of Total Revenue

11

Margin Analysis

Spot Copper Price Per Metric Ton vs. Company

Margins

Source: Bloomberg, BMI Data

Copper Price

Margin As % Of Revenue

12

Discounted Cash Flow Model

Valuation Methodology

ValuationTerminal EBITDA Multiple 7.5xProjected EBITDA, 2013 $59,771 Terminal Value $448,279 Discounted Terminal Value $302,702

Sum Of PV FCF $80,902Net Debt $18,957 Value Of Equity $364,472Target Price Per Share $24.61

$ In Millions

13

Conclusion

Q&A

Reiterate SELL Rating For BMI

Price Target: $25 Per Share