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

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

3. INTRODUCTION

4. 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

5. 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: $ mn
Current Price: $35.33
Shares Outstanding: mn
P/E Ratio: 23.18

6. COMPANY OVERVIEW

7. 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

8. 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

9. 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

10. 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

11. 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

12. MACROECONOMIC ANALYSIS

13. Macroeconomic Overview: Supply
Source: EIU Economic and Commodity forecast

14. Macroeconomic Overview: Demand
Source: Dodge Data & Analytics

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

16. 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

17. FINANCIAL ANALYSIS

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

19. Activity Ratios
Source: Group Calculation, 10-K

20. Greenblatt Ratios
Source: Group Calculation, 10-K

21. ROE Decomposition
Source: Group Calculation, 10-K

22. PROJECTION & VALUATION

23. Projection: Income Statement

24. Valuation: Discount Rate

25. Valuation: DCF

26. 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.

27. Relative Valuation: Greenblatt Ratios

28. Relative Valuation: Implied Price

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

30. RECOMMENDATION

31. 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

32. THANK YOU