Ari Lazar | Cindy Anggraini | Madina Yunussova Mihir Londhe| Zhi Cheng Low April 12, 2016 RCMP – SPRING 2016 | University of Illinois at Urbana-Champaign

Agenda Introduction Company Overview Macro-Economic Analysis Financial Analysis Projection & Valuation Recommendation

INTRODUCTION

Low Debt-to-Assets Ratio Screening Process Omega Flex Inc. Top-down Analysis Simple Business Model Profit Margin >10% ROE >10% Market Cap <4bn Low Debt-to-Assets Ratio

Key Information Company As of April 11, 2016 Name: Omega Flex, Inc. Ticker: OFLX Exchange listed: NASDAQ Special Dividend in Dec. 21,2015: $0.85/share As of April 11, 2016 Market capitalization: $356.54 mn Current Price: $35.33 Shares Outstanding: 10.09 mn P/E Ratio: 23.18

COMPANY OVERVIEW

Business Overview “A leading manufacturer and seller of flexible metal piping products that meet highly-engineered industrial, residential, and commercial applications.” Year Founded Headquarters Employees Operating Facilities Primary Industry Exton, PA (U.S.A) and Banbury, England (U.K) 1975 Exton, Pennsylvania EV/Employees > $2 mn (140 employees) Industrial Equipment and Components

Intellectual Properties Business Model Year Founded Headquarters Primary Industry 230 patents registered worldwide 7600 customers , market leaders in residential/industrial construction and general industry segments Independent sales representatives, distributors, direct sales, original equipment manufacturers (OEM), wholesalers, & online sales Customers Intellectual Properties Sales Distribution

Company’s Products TracPipe® CounterStrike® DoubleTrac® Solar-Trac® Natural gas and propane piping within residential and commercial properties DoubleTrac® Double containment piping contains and conveys waste products. Solar-Trac® Supply and return lines for residential and commercial solar-heated domestic hot water systems DEF-Trac® Used to destroy harmful emissions in exhaust from diesel-fueled heavy-duty trucks, pickups, SUVs and vans, Diesel Exhaust Fluid (DEF) Industrial Products Corrugated flexible metal hose, highly engineered assemblies, and braid products for the processing industries and other specialized applications

Management & Corporate Strategies Mr. Kevin R. Hoben is the President, CEO, Director since 1996 He has over 30 years of experience in the sale and distribution of flexible metal hose products 4 out of 7 directors are independent Corporate Governance Organic growth through increasing sales volume Cost reduction Increase operating efficiencies Corporate Strategies

SWOT & Risk Analysis Business Risk Strengths Opportunities Dominant position Strong distribution and sales networks High profitability and revenue Most energy efficient products Efficient asset utilization Greater access to capital Opportunities Raised line of credits New global/product markets Continued volume growth Tighter environmental regulations Weaknesses Reduced investments in Research & Development Retention of qualified personnel Threats Highly competitive market Stringent regulations New competitors Technological changes Business Risk Legal cost: Subject to periodic lawsuits, investigations and claims on lightning subrogation, which increase legal and product liability related expenses Dependence on a major customer: The customer represents roughly 16% of sales in 2015 Stong ties to the success of the construction industry

MACROECONOMIC ANALYSIS

Macroeconomic Overview: Supply Source: EIU Economic and Commodity forecast

Macroeconomic Overview: Demand Source: Dodge Data & Analytics

Macro-economic Analysis Source: Dodge Data & Analytics, IBIS World

Porter’s Five Forces Threat of New Entrants: Threat of Substitutes Supplier Bargaining Power Buyer Bargaining Power Rivalry Threat of New Entrants: Existing customers relationships Economies of scale Attractive industry Threat of Substitutes: Necessary part for construction industry Hard to find a feasible substitute Supplier Bargaining Power: Commoditized inputs Many suppliers Buyer Bargaining Power: Small number of firms in industry Limited Product differentiation Rivalry: Few players High margins Moderate INDUSTRY Low Low Moderate Low

FINANCIAL ANALYSIS

Liquidity & Profitability Ratios Source: Group Calculation, 10-K

Activity Ratios Source: Group Calculation, 10-K

Greenblatt Ratios Source: Group Calculation, 10-K

ROE Decomposition Source: Group Calculation, 10-K

PROJECTION & VALUATION

Projection: Income Statement

Valuation: Discount Rate

Valuation: DCF

Relative Valuation: Competitors Circor International Designs, manufactures, and markets engineered products and sub-systems used in the oil and gas, power generation, aerospace, defense, and industrial markets worldwide. Standex International Corporation Standex International Corporation is a diversified global manufacturing company operating in five segments, including Food Service Equipment, Engraving, Engineering Technologies, Electronics and Hydraulics. Chase Corporation Chase Corporation manufactures and sells protective materials for various applications worldwide. It operates through two segments, Industrial Materials and Construction Materials segments. Sun Hydraulics Corp Designs, manufactures, and sells screw-in cartridge valves, manifolds, and integrated fluid power packages and subsystems used in hydraulic systems to industrial and mobile customers worldwide.

Relative Valuation: Greenblatt Ratios

Relative Valuation: Implied Price

Valuation: Technical Analysis SMA 20 has almost crossed SMA 200 to give buy signal, but need more confirmation

RECOMMENDATION

Limit Order: 200 shares @ $30.00 good until 5/1/16 Recommendation Limit Order: 200 shares @ $30.00 good until 5/1/16 DCF Valuation: $28.45 (75%) Relative Valuation: $34.90 (25%) Final Price: $30.06 Implied TTM P/E: 19.2x

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