8/3/2019 Stock Pitch - AIT

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Applied Industrial Technologies

(AIT)

Recommendation: Buy

Current Price: $29.47

Intrinsic Value Range: $39 - $44Potential Upside: 34 - 50%

Adam Sues

UNC Stock Pitch Competition

September 2011

8/3/2019 Stock Pitch - AIT

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AIT Company Overview

Maintenance, repair, andoperations (MRO) companyfocused on industrial market

470 operating facilities & 7distribution centers

Serves over 2,000 suppliers

Offers over 4m product SKUs

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Investment Thesis

Industry Tailwinds

Manufacturing output

still below long-term

averages

Shareholder-Friendly

Management

Outperformingcompetition

+

Giving back to

shareholders

Attractive Valuation

Shares down 10% YTD

despite record year in FY

2011

Price Appreciation

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Industry Tailwinds

Consistent growth despite recession Revenues correlated to MCU Index

$451.0

$502.1 $508.1

$555.0

$633.6

$-

$100.0

$200.0

$300.0

$400.0

$500.0

$600.0

$700.0

2007 2008 2009 2010 2011

Shareholder's Equity

2007

2008

2009

2010

2011

8/3/2019 Stock Pitch - AIT

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Management Review:

Effective & Shareholder Friendly

$0.40

$0.48

$0.60 $0.60$0.60

$0.70

41.5

42

42.5

43

43.5

44

44.5

45

0.2

0.3

0.4

0.5

0.6

0.7

0.8

2006 2007 2008 2009 2010 2011

Dividends Shares Outs.

25.89%

15.50%

9.40%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

ROIC ROE ROA

AIT DXPE WCC AXE

Alignment with shareholders

Officer Shares Held Guideline % Extra

D. Pugh 19,602,593 4,725,000 314.9%

B. Mondics 3,173,136 2,250,000 41.0%

M. Eisele 4,714,550 1,314,000 258.8%

F. Bauer 2,478,848 1,065,000 132.8%

J. Ramras 1,769,318 1,050,000 68.5%

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Hidden ValueBalance sheet < true asset value

LIFO Inventory

Branch Real Estate Value

SAP implementation costs depressing profitability in short-term

$16.5 - $18.5m in expenses in 2012

15.74

12.68

2.58 1.77

0

2

4

68

10

12

14

16

18

WCC DXPE AXE AIT

P/T

angBV

Price to Tangible Book Value

WCC

DXPE

AXE

AIT

AIT - Adjusted Book Value

Tangible Book Value $ 11.04

+ LIFO Adjustment $ 3.26

+ Additional Real-Estate Value $ 2.38

Adjusted Book Value $ 16.68

Current Stock Price $ 29.47

Adj. P/TangBV 1.77x

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Risks to ThesisRisks Alt View

SAP Implementation

Large capital project

Retirement of CEO

Led company since 2000

Economic Slowdown

Macroeconomic

pressure

On-time and on-budget

Temporary earnings

pressure

Experienced management

Avg. Tenure: ~20 years

Recurring revenue stream

Repairs cannot be

postponed indefinitely