Review of National Presto (NPK)

11/20/09

AB Analytical Services

Summary

• Stock Not Covered by Wall Street• Three Divisions, None Too Cyclical• CEO owns 30%• Annual Dividend in March – High Payout• Strong Balance Sheet and FCF

Generation• Low Valuation

StockVal®NATIONAL PRESTO INDUSTRIES (NPK) Price 94.1768 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

PRICE3

4

6

9

14

20

30

44

65

95

HI 94LO 3ME 31CU 94GR 7.8%

11-07-196911-19-2009

PRICE RELATIVE TO S&P 500 INDEX WITH OPERATING EPS (SPX)0.4

0.5

0.7

0.9

1.1

1.5

1.9

2.5

3.2

4.2

HI 4.18 LO 0.42 ME 1.57 CU 1.82

11-07-196911-19-2009

ProfileCompany Profile

NATIONAL PRESTO INDUSTRIES (NPK)Price 94.170 11/19/09 FYE Dec

StockVal ®

Business Description:National Presto Industries, Inc. operates in three business segments: Housewares/Small Appliance, Defense Products and Absorbent Products. The Housewares/Small Appliance segment designs, markets and distributes housewares and small electrical appliances, including pressure cookers and canners, kitchen electrics, and comfort appliances. The Defense Products segment manufactures 40mm ammunition, precision mechanical and electro-mechanical assemblies, medium caliber cartridge cases, and performs Load, Assemble and Pack (LAP) operations on ordnance related products primarily for the U.S. government and prime contractors.

Price Change: Fundamentals: Valuation: Other Current Stats:Diff YTY 5-yr% SP5 $ %Chg Current Median

1-Week EPS T4Q (op) P/E T4Q Market Value4-Weeks EPS F12M P/E F12M Avg. Volume (thou)8-Weeks EPS Est. FY1 P/E FY1 Beta (60 mo.)13-Weeks EPS Est. FY2 P/E FY2 Pre-Tax Margin T4Q52-Weeks Revs T4Q P/Sales Net Profit Margin T4QQTD Cash Flw T4Q P/Cash Flw Return on Equity T4QYTD Book Value P/Book LT Debt/Capital2008 Dividend Est. Div. Yld GRE Median

6.62 5.92 4.38 3.13 12.44 8.24 11.84 1.96 63.06 27.32 8.85 5.28 22.30 1.08 46.22 84.71

8.62 34.1

474 6.39.90 29.1

45.80 7.41.00 NA

10.9 13.1 10.2

NA NA

1.36 1.26 9.51 10.52 2.06 1.39

1.06% 5.60%

64631

0.8619%12%20%

0.00%%

Contact:Address:

Internet:Country:Employees:Cusip:

Expected Report Date:

GICS Econ Sec:GICS Ind Grp:GICS Ind:GICS Sub Ind:

Russell Sec:Russell Ind:

SV Sector:SV Industry I:SV Industry II:

Exchange:Options Exchange:S&P 500 %:S&P 500 Stock:

Analyst:Rating:

Universe:Equity Type:

Randy Lieble3925 North Hastings WayEau Claire, WI 54703715-839-2164

http://www.gopresto.comUSA

996637215104

11/08/05

ConsDiscDuraAprlHomeDrblHousewar

ConsDiscElec:App

04 Consumer Discretionary061 Household Appliances

NYSE

0.0065%No

Company History

• Founded in 1905 (Northwestern Steel & Iron Works)

• HQ: Eau Claire, WI • National Pressure Cooker Company (1917)• 1953 – National Presto (due to diversification)• History of Innovation in Home Appliances• Diapers through acquisitions in 2001 and 2003• Defense through acquisition in 2001 then 2006• Litigation Battle with SEC – Victorious 5/15/07

3 Divisions

• Housewares• Defense• Absorbent Products

Housewares

• Approximately 31% of 2008 Sales• Sourced from Asia – sold through Retail and

Distributors (35% = Wal-Mart)• Q4 is peak of sales (substantially)• Two types of products

– Cast (53%): Griddles, Wafflemakers, Hamburgers, Deep Fryers

– Non-Cast/Thermal (47%): Pizza, Popcorn, Coffee• Trend towards in-home food preparation

offsetting typical cyclicality

Defense

• 53% of Sales in 2008• 2001 acquisition (AMTEC)• 2005 – 1 of 2 Prime Contractors 40mm practice

and tactical ammo (5yr contract)• 2003 – Spectra (Load Assemble and Pack)• 2006 – Amron (cartridge cases)• Fixed-Price Contracts for Army• U.S. Army Contracts were $144 in 2008 (60.6%

of segment)

Absorbent Products

• 16% of Sales in 2008• Entered Market in 2001 (RMED Intl) –

private label primarily• Diapers and adult incontinence products• 2003 NCN acquisition was a “dog” –

closed facility and quit making dog pads• Segment has lost money until this year

Management• Maryjo Cohen, 56: Chairman since 2001 and CEO since

1994, daughter of recently deceased former CEO Melvin Cohen (with company since 1976)

• CFO (Director) returned in late 2008, former CFO 1999-2007 (with company >30yrs)

• VP Sales and VP Engineering both joined in 1971 • 3 Outside Directors ($30k fee earned per yr)

• Compensation plan consists solely of salary (and not much) – no bonuses, no stock/options

• CEO Succession Plan exists (no details)• Auditor: BDO Seidman

Ownership Issues

• Royce owns 11.7%, Barclays and Renaissance > 5%

• Member S&P 600, R2000• Moderate Short-interest: 3%, 8 days• Average Daily Trading – 31K ($3mm)• Insiders own 30% (CEO 30% - mainly as

Trustee)• No options outstanding

Long-Term Revenue GrowthStockVal®NATIONAL PRESTO INDUSTRIES (NPK) Price 94.17

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

REVENUES100

150

220

320

480HI 479LO 106ME 126CU 474GR 6.9%

12-31-198909-30-2009

REVENUE-PER-SHARE10

15

25

45

70HI 70LO 14ME 17CU 69GR 7.3%

12-31-198909-30-2009

REVENUES YTY % CHANGE-25

0

25

50

75HI 75.3 LO -24.7 ME 4.9 CU 6.3

12-31-198909-30-2009

REVENUE-PER-SHARE YTY % CHANGE (SMOOTHED)-25

0

25

50

75HI 75.2 LO -24.7 ME 5.7 CU 6.1

12-31-198909-30-2009

Income Statement

• GM 18% 2006-2008, 20-30% 2000-2005• GM YTD: 22%• EBIT: 13-15% 2004-2008• EBIT YTD: 18%• YTD sales up 9%, NI up 57%

2009 Sales % 2009 Sales Growth 2009 YTD OM 2008 YTD OM Change

Appliances 26% 17% 16.6% 9.1% 7.5%

Defense 57% 8% 21.5% 18.4% 3.1%

Diapers 17% 6% 9.4% -2.4% 11.8%

Balance Sheet

• $133mm cash• Net PPE: $50mm• Inventory a little high at $101mm (Finished Goods up

50% YTD, Raw Materials up 150%)• AR low at $68mm

• LTD $0mm• Total Liabilities: $55mm

• Equity: $314mm• Tangible Equity: $302mm

Cashflow Statement

• 2008: 110% FCF conversion (4.4mm Capex and 8.8mm D&A)

• >100% every year since 2003• 2009 YTD: FCF = 108% of NI

Technicals

• 80 was >20yr high first tested 9/08 (not far from breakout)

• Modest relative performance over past year• Seasonal trend favorable in front of big dividend

11/08 12/08 1/09 2/09 3/09 4/09 5/09 6/09 7/09 8/09 9/09 10/09 11/09 12/09

NATIONAL PRESTO INDUSTRIES (NPK)PRICE 94.17 DATE 11-19-2009PRICE 94.17 DATE 11-19-2009StockVal®

4646

4949

5252

5555

5959

6262

6666

7070

7575

8080

8585

9090

96

102

108

50

150

1.15

SP5

AB Analytical Services

PE RATIO77

88

99

1010

1111

1212

1313

ValuationStockVal®NATIONAL PRESTO INDUSTRIES (NPK) Price 94.17

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

PE RATIO6

12

18

24

30 HI 28.5 LO 7.7 ME 16.1 CU 10.9 FY1 NEFY2 NE

11-12-199911-19-2009

PRICE / BOOK VALUE0

1

2

3HI 2.1 LO 0.7 ME 1.1 CU 2.1

11-12-199911-19-2009

ENTERPRISE VALUE/SALES0.0

0.4

0.8

1.2

1.6HI 1.4 LO NEGME 0.6 CU 1.1

11-12-199911-19-2009

ENTERPRISE VALUE/EBITDA0

10

20

30

40HI 39.4 LO NEGME 4.0 CU 5.2

11-12-199911-19-2009

Forward-Looking Data• Housewares (from Q3 Press Release):

With an end date of October 4, the 2009 quarter contained one more strong seasonal shipping week than third quarter 2008, which ended on September 28. In addition, the heightened demand for Housewares/Small Appliances reported for both first and second quarters of 2009 continued during the third quarter. Given the high levels of unemployment and overall retail weakness, it is questionable whether the Housewares/Small Appliance sales pace enjoyed during the first three quarters of the year can be sustained during the all important fourth quarter

• Defense– $52mm add-on award for 2010-11(9/2009)– $67mm add-on award for 2010 (2/2009)– $34mm add-on award for 2010 (1/2009)

• Absorbent Announcement 9/30/09:The Company also announced that its absorbent product subsidiary, Presto Absorbent Products, Inc. recently entered a two year private label manufacturing agreement with its major customer. The agreement provides a framework for the ongoing relationship between the parties. It is anticipated that shipments to the customer during the two year contractual period will be maintained at levels comparable to current volume. The subsidiary also will continue its program to further diversify its customer base.

Q4 EPS???

• Q4 Assumptions:– Housewares up 15%, Absorbent up 10%,

Defense flat Sales of $158mm (up 10%)– OM: Houseware: 20% (-300bps v 2008),

Defense 21.5%, Absorbent 10% 20% growth– EPS estimate 3.18 (full year $9.12)– Note that EPS growth was 64% Q3, 39% Q2,

73% Q1 and just 1% in Q4-08

$>7 Dividend in March???

EPS Dividend (next year)

2002 1.27 0.92 72%

2003 2.27 1.17 52%

2004 2.26 1.67 74%

2005 2.4 2.12 88%

2006 4.09 3.8 93%

2007 5.65 4.25 75%

2008 6.45 5.55 86%

2009 9.12e 7.30-8.00 80-90%

2010 Projection

• 2009 Projected Sales 8% to 485mm• 2010 By Segment

– Houseware: Slows to 10%– Defense: Stays 8%– Absorbent: Just 5%– Total Sales rise 8% from 485mm to 525mm

• Margin Assumptions: Houseware falls from 18% to 16%, Defense falls from 21.5% to 21%, Absorbent increases from 9.6% to 11%

• Operating Profits Grow 4% (EPS of 9.48)• Conservative Conclusion: 8% Sales Growth and 4%

EPS growth

Sum of the Parts Analysis

• Housewares: 15 PE $267mm• Defense: 9 PE $334mm• Absorbent: 10 PE (?) $58mm• Cash: 132mm

• $791mm/6.857 $115

Risks/Opportunities

Risks• Defense Cycle • Defense Contract Loss• Wal-Mart is 11% Customer• Medline 12% for Absorbents (2yr contract)• Input costs / transportation costs• No forward guidance provided, no conference calls

either• Management Depth???

Opportunities• Defense contracts give stability• Continued profitability improvement in absorbents• Acquisitions

Conclusion

• Limited downside – big dividend ahead (>$7)

• Stock Trades at 10PE before consideration of cash of $20 per share

• Seems to compensate for CEO reliance• Businesses are not very cyclical