wd-40 saturday presentation

CFA Institute Research ChallengeSan Diego, CA - RegionalUniversity of San Diego

San Diego, CA

Jamie ArnoldIke Ekeh

Joe LaBarberaLouis Lukondi

Harsha Musthyala

Executive Summary

2015 Highlights• Hired 57 new employees• Acquired GT85• $75M share buyback plan• Operations extend to over 61

countries

Market ProfileClosing Price $97.4452-Week High / Low $104.99 / $80.15Average Volume (3M) 67,676Diluted Shares Out. 14,461,000Float 13.91M

Liquidity $97.39-$98.76 Bid-Ask Spread

Short Interest as a % of S/O 2.55%Market Cap $1.49BDividend Yield 1.61%Beta 0.8EV / Revenue 13.2xEV / EBITDA 23.1xFCFF / Share 22.8xInstitutional Holdings 72.59%Insider Holdings 3.84%

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40

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120

97.440002

WD-40 Weekly Stock Price

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)

89.88

• Founded 1953• 2 Product Categories

• Maintenance• Homecare and Cleaning

• 3 Regions• Americas• EMEA• Asia-Pacific

• Low debt capital structure• Goals:

• Double Revenue• 55/30/25• Growth in China

August 31, 2015 August 31, 2014 August 31, 2013$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$333,306 $337,825 $320,883

$44,844 $45,172 $47,665

Revenue By Category

Mainenance Products Homecare and Cleaning Products

August 31, 2015 August 31, 2014 August 31, 2013$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$187,344 $180,806 $180,544

$136,847 $151,368 $137,360

$53,959 $50,823 $50,644

Revenue by Region

Americas EMEA Asia-Pacific

Business Description

Threat of New Entrant

Threat of Substitute Products

Bargaining Power of CustomersBargaining Power of Suppliers

Intensity of Competition

0

5

10

Porter's 5 Forces Analysis- Intense industry competition

due to price sensitivity- Threat of substitution

internationally may arise- Strong brand loyalty will fend

off new entrant threat locally

Industry Overview

U.S. Demand Demographics

Construction & Skilled Traders

At-Home “Non-

Enthusiast”

At-Home Doer-

Enthusiast

Maintenance Repair & Overhaul

Majority of MUP sales come from end-users in workshops

8 out of 10 U.S. households have at least one can of WD-40 MUP in-home

EMEA Region

GERMANY is the 2nd largest DIY market in the world and an area in which the company sees future expansion

Asia-Pacific RegionThe company predicts that the target demographic will be commercial use in manufacturing

Industry Overview

Competitive Positioning – MUP:- Prime shelf space - Large selection of size- Preferred by customers

according to store representatives

Tri-Flow by Sherwin Williams- Largest Direct MUP competitor- Sold at a premium- Smaller size selection

Industry Overview

Competitive Positioning – Specialty Products:

• Liquid Wrench is the largest specialty lubricant competitor

• As with other competitors, it is sold at a premium to WD-40 products

• Larger selection of specialty products relative to competitors• Strong brand recognition places WD-40 specialty products at the

top of consumer choice list

***WD-40 has recently purchased GT85, a well established bike lubricant company based in the U.K. which will accelerate WD-40”s expansion in the EMEA market

Industry Overview

Investment Summary

SWOT

Strengths Weaknesses

ThreatsOpportunities

• Strong brand recognition• Low input costs• Well controlled debt use • Short lead time for product changes (2-5

months)

• Currency translation issues; no hedging• Weak market penetration in Latin America &

Canada• Highly competitive market with extreme price

sensitivity

• Shift to DTC/online companies less need for distribution channel

• Low interest rates on credit facility cash for future projects and/or share buybacks

• Potential divesture of “Homecare and Cleaning” products cash for further investments GT85 product purchase

• Strengthening of the dollar and pound against the Euro ( > 1/3 sales from EMEA region)

• Weak brand recognition in Asia-Pacific region coupled with relatively soft regulation on intellectual property infringement on WDFC formula

Impact

High Raw Materials

Cost

Environmental

Regulation

Medium Quality & Safety Government Instability

Global Economic Conditions

Brand Name & Recognition

Foreign Taxes & Fees

Low

Talent Retention

Low Medium High

Probability

Risk

3/3/13 9/3/13 3/3/14 9/3/14 3/3/15 9/3/150

5,000

10,000

15,000

20,000

World Markets

NASDAQ Linear (NASDAQ)Nikkei (japan) Linear (Nikkei (japan))SSE Composite (China) Linear (SSE Composite (China))DAX (Germany) Linear (DAX (Germany))FTSE 100 (London) Linear (FTSE 100 (London))

In $

Countries Stability RatingYemen -2.53

Pakistan -2.44Ukraine -1.93Lebanon -1.72

Egypt -1.58Colombia -1.12

Turkey -1.06Israel -0.99India -0.96

Bahrain -0.94

Crude Oil WTI FuturesDate Price Change

Mar-16 $29.59 Apr-16 $30.88 4.36%

May-16 $31.97 3.53%Jun-16 $32.90 2.91%Jul-16 $33.62 2.19%

Aug-16 $34.06 1.31%Sep-16 $34.70 1.88%Oct-16 $35.13 1.24%Nov-16 $35.45 0.91%Dec-16 $35.95 1.41%Jan-17 $36.53 1.61%Feb-17 $36.88 0.96%Mar-17 $35.59 -3.50%Apr-17 $36.96 3.85%

May-17 $36.69 -0.73%Jun-17 $37.69 2.73%Jul-17 $38.49 2.12%

Aug-17 $36.85 -4.26%Sep-17 $37.73 2.39%Oct-17 $37.97 0.64%Nov-17 $38.22 0.66%Dec-17 $39.20 2.56%

Risk

Rating Methodology

Executive Management - STRONG

Board of Directors - STRONG

Takeover Defense - STRONG

Rights of Shareholders - MEDIUM

Disclosure and Transparency - MEDIUM

Corporate Governance

Financial Analysis

Debt Analysis:- No long-term debt-108 mil revolving credit

Total liabilities/ MV of Equity: Projected ratio of 0.165

EBITDA margin: Approximately 22% against expected 25% - 25% seems over-achieving- Unless new sales come in or growth in sales in China

Valuation Methods

EV/Sales LTM15%

DCF70%

EV/EBITDALTM15% Weighted

Average Implied Share Price

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Relative Valuation

Valuation Statistics Capitalization Enterprise Value / Enterprise Value /

Share Equity Enterprise Revenue(1) EBITDA(1) P / E Multiple(1)

Company Name Price Value(1) Value(1) LTM 12/31/15 12/31/16 LTM 12/31/15 12/31/16 LTM 12/31/15 12/31/16

Clorox CLX $127.89 $16,555.00 $18,461.00 3.24 x 3.26 x 3.24 x 14.84 x 15.77 x 14.78 x 24.7 x 24.7 x 26.0 x

Church & Dwight CHD $89.51 $11,737.00 $12,507.00 3.68 x 3.68 x 3.60 x 16.13 x 16.13 x 15.23 x 29.2 x 29.2 x 25.6 x

Spectrum Brands SPB $93.26 $5,538.00 $9,548.00 1.97 x 1.97 x 1.87 x 12.95 x 12.96 x 10.40 x 31.5 x 31.5 x 19.2 x

Colgate-Palmolive CL $67.22 $60,010.00 $65,544.00 4.09 x 4.09 x 4.31 x 14.95 x 14.95 x 14.88 x 44.2 x 44.2 x 24.3 x

Maximum $127.89 $60,010 $65,544 4.1 x 4.1 x 4.3 x 16.1 x 16.1 x 15.2 x 44.2 x 44.2 x 26.0 x

75th Percentile 101.92 27,419 30,232 3.8 x 3.8 x 3.8 x 15.2 x 15.9 x 15.0 x 34.7 x 34.7 x 25.7 x

Median $91.39 $14,146 $15,484 3.5 x 3.5 x 3.4 x 14.9 x 15.4 x 14.8 x 30.3 x 30.3 x 24.9 x

25th Percentile 83.94 10,187 11,767 2.9 x 2.9 x 2.9 x 14.4 x 14.5 x 13.7 x 28.0 x 28.0 x 23.0 x

Minimum 67.22 5,538 9,548 2.0 x 2.0 x 1.9 x 13.0 x 13.0 x 10.4 x 24.7 x 24.7 x 19.2 x

WD-40 WDFC $105.80 $1,523.00 $1,529.00 4.1 x 4.1 x 3.9 x 20.8 x 20.8 x 19.6 x 33.7 x 33.7 x 31.5 x

Implied Equity Value and Share Price EV/Sales LTM

Enterprise Value $1,296.3

Less: Total Debt (125.0)

Plus: Cash and Cash Equivalents 102.5

Implied Equity Value $1,273.8

Dilluted Shares Out 14.6

Implied Share Price $87.25

Implied Equity Value and Share Price EV/EBITDA LTM


Less: Total Debt (125.0)

Plus: Cash and Cash Equivalents 102.5


Implied Share Price 14.6


$87.25

$73.37

EV / Sales LTM

EV / EBITDA LTM

Relative Valuation

DCF Assumptions

Revenue Breakdown by Geography 2016E 2017E 2018E 2019E 2020E Total Revenue Growth 2.77% 3.19% 3.51% 3.73% 3.60% The Americas Multi-purpose maintenance products 4.24% 4.75% 5.00% 5.25% 5.00% Homecare and cleaning products -6.42% -6.42% -5.00% -5.00% -4.75% Europe Multi-purpose maintenance products 2.18% 2.50% 2.60% 2.70% 2.50% Homecare and cleaning products -4.46% -4.46% -3.00% -3.00% -3.00% Asia-Pacific Multi-purpose maintenance products 6.50% 6.50% 6.25% 6.25% 6.00% Homecare and cleaning products 2.94% 2.94% 2.50% 2.50% 2.50%

2016E 2017E 2018E 2019E 2020ENOPAT $54.63 $59.10 $62.59 $66.39 $67.26 Plus: Depreciation & Amortization 1.98 2.04 2.11 2.19 2.27Less: Capital Expenditures -4.10 -4.10 -4.10 -4.10 -4.10Less: Increase in Net Working Capital -1.83 -1.89 -1.95 -2.03 -2.10 Unlevered Free Cash Flow $50.68 $55.16 $58.65 $62.45 $63.33 WACC 8.33% 8.33% 8.33% 8.33% 8.33% Discount Period 1.00 2.00 3.00 4.00 5.00 Discount Factor 0.9231 0.8521 0.7866 0.7261 0.6703 Present Value of Free Cash Flow $46.79 $47.00 $46.13 $45.35 $42.45

Capital StructureEquity 157,900Debt 118,000Total 275,900 Cost of Equity 8.73%Weight E 93% Prime Rate 4.50%Weight 7%Tax Rate 32% WACC 8.33%LT WACC 8.50%

DCF Assumptions

Enterprise Value Multiple MethodCumulative Present Value of FCF $227.7

Terminal ValueTerminal Year EBITDA (2020EE) $101.2 Exit Multiple 14.9x Terminal Value $1,507.6

Discount Factor 0.6703

Present Value of Terminal Value $1,010.5 % of Enterprise Value 81.6%


Implied Equity Value and Share PriceEnterprise Value $1,238.3

Less: Total Debt 118.0 Plus: Cash and Cash Equivalents 102.5


Diluted Shares Out 14.6


Gordon Growth MethodCumulative Present Value of FCF $227.7 Terminal Value Terminal Year Free Cash Flow (2020EE) $63.3 Terminal WACC 8.5% Perpetuity Growth Rate 2.5%

Terminal Value 1055.55Implied Multiple 16.67

Enterprise Value $1,283.27 Less: Total Debt 118.0

Plus: Cash and Cash Equivalents 102.5 Implied Equity Value $1,267.77 Implied Share Price $86.83

$93.97

Valuation Methods

$87.25

$93.97

$73.37

Discounted Cash Flow (DCF)70%

EV/Sales LTM 15%

EV/EBITDA15%

Implied Share Price

$89.88

Recommendation

Pros

• Strong Brand• Low debt

structure• Acquisition of

GT85

Cons

• Increased margins result of temporarily low raw material costs

• Decreased sales$89.88

HOLD

Questions?

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Pro Forma Income Statement

Historical Period CAGR Projection Period CAGR

2011 2012 2013 2014 2015 ('11-'15) 2016E 2017E 2018E 2019E 2020E ('16-'20)

Sales 336.4 342.8 368.5 383.0 378.2 2.4% $388.6 $401.0 $415.1 $430.6 $446.1 2.8% % growth 4.6% 1.9% 7.5% 3.9% -1.3% 2.8% 3.2% 3.5% 3.7% 3.6%

COGS 168.297 174.302 179.4 184.1 178.0 180.7 182.5 186.8 191.6 200.7

Gross Profit $168.1 $168.5 $189.2 $198.9 $200.2 3.6% $207.9 $218.6 $228.3 $239.0 $245.3 3.4% % margin 50.0% 49.2% 51.3% 51.9% 52.9% 53.5% 54.5% 55.0% 55.5% 55.0%

SG&A 106.943 109.52 122.0 125.6 122.7 125.6 129.6 134.1 139.1 144.2

R&D 5.5 5.1 7.2 6.9 9.0 7.0 7.2 7.9 8.4 8.9

Other Operating Expense 0 0 1.1 - 1.4 1.5 1.5 1.6 1.7

EBITDA $55.7 $53.9 $58.9 $66.4 $68.4 4.2% $82.3 $89.0 $94.2 $99.8 $101.2 4.2% % margin 16.5% 15.7% 16.0% 17.3% 18.1% 21.2% 22.2% 22.7% 23.2% 22.7%

Depreciation & Amortization 1.537 2.133 2.3 2.6 3.0 2.0 2.0 2.1 2.2 2.3

EBIT $54.1 $51.7 $56.6 $63.7 $65.4 3.9% $80.3 $86.9 $92.0 $97.6 $98.9 4.2% % margin 16.1% 15.1% 15.4% 16.6% 17.3% 20.7% 21.7% 22.2% 22.7% 22.2%

Taxes 17.098 15.428 17.1 19.2 18.3 25.7 27.8 29.5 31.2 31.7

EBIAT $37.0 $36.3 $39.6 $44.5 $47.1 4.9% $54.6 $59.1 $62.6 $66.4 $67.3 4.2%

Plus: Depreciation & Amortization 1.5 2.1 2.3 2.6 3.0 2.0 2.0 2.1 2.2 2.3

Less: Capital Expenditures 2.88 3.77 2.9 4.1 5.8 (4.1) (4.1) (4.1) (4.1) (4.1)

Less: Increase in Net Working Capital -10.4 3.4 (1.7) (7.1) 4.1 (1.8) (1.9) (2.0) (2.0) (2.1)

Unlevered Free Cash Flow $50.7 $55.2 $58.6 $62.5 $63.3

WACC 8.33% 8.33% 8.33% 8.33% 8.33%

Discount Period 1 2 3 4 5

Discount Factor 0.9231 0.8521 0.7866 0.7261 0.6703

Present Value of Free Cash Flow $46.8 $47.0 $46.1 $45.3 $42.5

wd-40 saturday presentation

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