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The presentation written and delivered by myself and a team of Marquette AIM Seniors at the America\'s Regional of the CFA Global Investment Research Challange in March, 2009
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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