An update

Tags: Taglich Brothers, Inc., foam packaging, UFP Technologies, Inc., Earnings per share, packaging products, Standard of Excellence, UFP Technologies, Approximate Float, Robert C. Schroeder, NASD, packaging market, Specialty foam products, Institutional Holdings Insider Holdings, The Company, foam products, Total Enterprise Value, earnings momentum, Share Price, UFP Technologies, Inc, Excluding Simco, Simco, product capabilities, share count, market segments, increase
Content: Taglich Brothers, Inc. The Standard of Excellence in the Microcap Market Member: NASD, SIPC
Research Report- Update Buy UFP Technologies, Inc.
Robert C. Schroeder May 15, 2000
Ticker: UFPT--$2.56 (NASDAQ) Revenues (millions) Earnings per share P/E Ratio
FY1997 $45.5 $0.27 ---
FY1998 $47.2 $0.34 ---
FY1999A $58.8 $0.35 ---
FY2000E $74.2 $0.36 7.1x
FY2001E $79.5 $0.48 5.3x
52-Week Range Shares Outstanding-fully diluted Approximate Float (shares) Institutional Holdings Insider Holdings
4.75--2.25 4.5 million 1.2 million 2.0% 43.5%
ROE (FY2000E) Fiscal Year Ends Sales per share (FY2000E) Price/Sales (FY2000E) Current Price/Hard Book
9.5% December $16.60 0.15x 1.39x
UFP Technologies is a leading U.S. manufacturer of custom-designed cushion foam packaging and specialty foam packaging products and engineered specialty foam and laminated products. The company is the North American leader in 100% recycled molded-fiber packaging products that offer an environmentally responsible alternative to plasti-based packaging products in the high-volume consumer packaging market.
Key investment considerations: · Revenues in the first quarter were $18.2 million, with earnings of $0.05 per share, versus $13.5 million and $0.06 in Q1 last year. The results were higher than our estimates of $17.5 million and $0.02 per share. The company stated that operational improvement at its recent acquisition has been occurring at a more rapid pace than originally anticipated. · Specialty foam products have grown in stature and we expect revenues from this segment to account for more than half of Total Revenues this year for the first time. Recent new contracts and the Simco acquisition have positioned UFPT in the large automotive specialty foam market. · We see earnings momentum starting in the second half of this year, with $0.23 in earnings per share in the third and Fourth Quarter. We are maintaining our buy rating on the shares of UFPT. Our twelve to fifteen month price target is $5.00 to $6.00 per share, which is 12.0x to 13.0x our 2001 mid-point earnings and values the company at 5.0x Total Enterprise Value to EBITDA. The information and statistical data contained herein have been obtained from sources which we believe to be reliable but in no way are warranted by us as to accuracy or completeness. We do not undertake to advise you as to change in figures or our views. This is not a solicitation of any order to buy or sell. We, our affiliates, and any officer, director or stockholder, or any member of their families, may have a position in and may from time to time purchase or sell any of the above-mentioned or related securities. The Company mentioned in this report may from time to time be involved in an investment banking relationship with Taglich Brothers, Inc. Since February 2000, the company pays a monthly monetary fee of $1,000 (USD) to Taglich Brothers, Inc. for the creation and dissemination of research reports. 1370 Avenue of the Americas, 31st Floor, New York, N.Y. 10019 (800) 456-1220 · Fax (212) 265-4744 www.taglichbrothers.com
UFP Technologies, Inc.
Recent Results Revenues in the first quarter were $18.2 million, versus $13.5 million in Q1 last year, an increase of 36% and higher than our estimates of $17.5 million. The first quarter reflects the addition of revenues from Simco, acquired in the middle of January. Excluding Simco, revenues increased in both packaging and specialty foam segments in the first quarter over the previous year. Revenues in packaging were $8.2 million, about a 9% increase from last year, representing general overall growth in that segment. Specialty Foam revenues were approximately $10.0 million in the quarter, versus $5.9 million in Q1 last year, with Simco probably accounting for an estimated $2 to $2.5 million. Specialty also saw growth from the new automotive foam contract for the Taurus and Sable programs that began late last year. In Q1 UFPT had net earnings of $218 thousand, or $0.05 per share, versus $291 thousand, or $0.06 per share, last year and beating our estimates of $0.02 per share. We had anticipated that the integration of Simco would negatively impact earnings in the first half of his year. However, the company stated that operational improvement has been occurring at a more rapid pace than originally anticipated. Earnings per share in the latest quarter benefited from a lower share count that was the result of a recent stock repurchase, somewhat offset by a higher tax rate. Business Trend The company has been pursuing a strategy of penetrating new Market Segments and expanding product capabilities to internally grow molded fiber packaging. Conversely, UFPT has been pursuing strategic acquisitions in foam companies, where raw material costs are much higher, that add geographic presence, new technologies and improve operating efficiencies. This has been somewhat the case in foam packaging and particularly so in specialty foam. The chart below demonstrates the trend in revenue between total packaging and specialty foam. As the trend suggests specialty foam products have grown in stature and we expect revenues from this segment to account for more than half of revenues this year for the first time. Recent new contracts and the Simco acquisition have positioned UFPT in the large automotive specialty foam market that offers steady revenues from potentially larger, longer-term contracts. This segment now possesses increased capabilities and expertise, a larger number of foam products and new automotive customers.
In Millions
Segment Revenues as a Percentage of Total
$80
$70
$60
$50
$40
$30
68%
$20
$10 32% $0
FY1997
57% 70% 43% 30%
F1998
F1999
Fiscal Year
47% 53% F2000E
Packaging Specialty Foam
Taglich Brothers, Inc. 2
UFP Technologies, Inc. Projections We are fine tuning our estimates for this fiscal year, projecting revenues of $74.2 million and earnings per share of $0.36 for 2000. Our EPS estimate remains the same overall, but we have slightly decreased earnings in the second half of the year, partially due to higher taxes. We project an overall tax rate of about 43%, reflecting the nondeductible goodwill from Simco. We project EBITDA of about $6.7 million in 2000, an increase of 20% from 1999. We are leaving our revenue estimates for 2001 unchanged with $79.4 million, accompanied by EBITDA of $7.6 million. We have decreased our earnings per share estimates by $0.01, to $0.48, to reflect slightly higher estimated taxes. Outlook We see earnings momentum starting in the second half of this year, with $0.23 in earnings per share in the third and fourth quarter. We are maintaining our buy rating on the shares of UFPT. Our twelve to fifteen month price target is $5.00 to $6.00 per share which is 12.0x to 13.0x our 2001 mid-point earnings and values the company at 5.0x Total Enterprise Value to EBITDA. Chart Courtesy Quotron Systems. Taglich Brothers, Inc. 3
Packaging Revenues Specialty Revenues Total Revenues Costs of Goods Sold Gross Profit gross margins S,G&A Operating Income operating margin Interest Expense-net Other-net Pre-Tax Income Pre-Tax Margins Taxes (Benefit) Tax Rate Net income EPS-fully diluted Avg. Shares Out-fully diluted Percent of Revenue Costs of Goods Sold SG&A Net Margin Year / Year Growth Total Revenues Operating Income Pre-Tax Income Net Income Total Debt-net of Cash market capitalization Total Enterprise Value (TEV) EBITDA Year / Year Growth TEV / EBITDA Multiple share price @ 5.0X TEV / EBITDA Share Price @ 6.0X TEV / EBITDA Share Price @ 7.0X TEV / EBITDA Share Price @ 8.0X Earnings Share Price @ 10.0X Earnings Share Price @ 12.0X Earnings
UFP Technologies, Inc. Yearly income statement Model (In Thousands)
F1996A
F1997A
F1998A
$ 23,717 $ 30,987 $ 33,001
15,642
14,465
14,218
$ 39,359 29,447 9,912
45,452 33,200 12,252
47,220 34,140 13,080
25.18%
26.96%
27.70%
F1999A
F2000E
$ 33,339 $ 34,829
25,462
39,354
58,802 43,939 14,863
74,183 56,007 18,176
25.28%
24.50%
F2001E $ 37,615 41,867 79,483 60,203 19,280 24.26%
7,818 2,094 5.32%
9,318 2,934 6.46%
9,906 3,174 6.72%
11,562 3,301 5.61%
14,238 3,938 5.31%
14,500 4,780 6.01%
426 - 1,668 4.24%
630 - 2,304 5.07%
447 (60) 2,787 5.90%
640 (169) 2,830 4.81%
1,124 - 2,814 3.79%
1,025 - 3,755 4.72%
406 24.34%
995 43.19%
1,141 40.94%
1,136 40.14%
1,217 43.27%
1,598 42.56%
$ 1,262 $ $0.26 $ 4,874
1,309 $ 0.27 $ 4,863
1,646 $ 1,694 $
0.34 $ 0.35 $
4,819
4,896
1,596 0.36 4,475
$ 2,157 $ 0.48 4,500
74.82% 19.86% 3.21%
73.04% 20.50% 2.88%
72.30% 20.98% 3.49%
74.72% 19.66% 2.88%
75.50% 19.19% 2.15%
75.74% 18.24% 2.71%
15.44% 91.23% 154.66% 42.28%
15.48% 40.11% 38.13% 3.72%
3.89% 8.18% 20.96% 25.74%
$ 3,592 $ 4,736 $ 5,074
53.7%
31.8%
7.1%
24.53% 4.00% 1.54% 2.92%
26.16% 19.29% -0.58% -5.77%
7.14% 21.39% 33.45% 35.13%
$ 5,601 10.4%
$ 15,460 11,467 $ 26,928 $ 6,765 20.8% 3.98
$ 13,209 11,531 $ 24,741 $ 7,580 12.1% 3.26
$4.10 $5.62 $7.13
$5.49 $7.17 $8.86
$2.86 $3.57 $4.28
$3.83 $4.79 $5.75
Taglich Brothers, Inc. 4
Packaging Revenues Specialty Revenues Total Revenues Costs of Goods Sold Gross Profit Gross Margins S,G&A Operating Income Operating Margin Interest Expense-net Other-net Pre-Tax Income Pre-Tax Margins Taxes (Benefit) Tax Rate Net Income EPS-fully diluted Avg. Shares Out-fully diluted Percent of Revenue Costs of Goods Sold SG&A Net Margin Year / Year Growth Packaging Revenues Specialty Revenues Total Revenues Operating Income Pre-Tax Income Net Income
UFP Technologies, Inc. Fiscal 2000 Income Statement Model (In Thousands)
Q1A $ 8,229 10,054 18,283 13,981 4,303 23.54%
Q2E $ 9,000 9,600 18,600 14,098 4,502 24.20%
Q3E $ 9,000 9,800 18,800 14,153 4,647 24.72%
Q4E $ 8,600 9,900 18,500 13,775 4,725 25.54%
3,613 690 3.77%
3,550 952 5.12%
3,525 1,122 5.97%
3,550 1,175 6.35%
294 - 396 2.17%
285 - 667 3.58%
275 - 847 4.50%
270 - 905 4.89%
178 44.95%
291 43.60%
363 42.83%
386 42.65%
$ 218 $ 0.05 4,390
$ 376 $ 0.08 4,500
$ 484 $ 0.11 4,500
$ 519 $ 0.12 4,500
F2000E $ 34,829 39,354 74,183 56,007 18,176 24.50% 14,238 3,938 5.31% 1,124 - 2,815 3.79% 1,217 43.25% $ 1,597 $ 0.36 4,475
F2001E $ 37,615 41,867 79,483 60,203 19,280 24.26% 14,500 4,780 6.01% 1,025 - 3,755 4.72% 1,598 42.56% $ 2,157 $ 0.48 4,500
76.47% 19.76% 1.19%
75.80% 19.09% 2.02%
75.28% 18.75% 2.58%
74.46% 19.19% 2.81%
75.50% 19.19% 2.15%
75.74% 18.24% 2.71%
8.95% 69.77% 35.67% 11.83% -19.84% -25.09%
1.59% 59.07% 24.88% 3.12% -9.03% -14.72%
9.78% 57.00% 30.19% 68.96% 69.04% 60.84%
-1.48% 36.31% 15.68% 7.11% -17.88% -21.48%
4.47% 54.56% 26.16% 19.29% -0.54% -5.71%
8.00% 6.39% 7.14% 21.39% 33.40% 35.04%
Taglich Brothers, Inc. 5

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