Vous êtes sur la page 1sur 17

Business Valuation

Presented By:
Joseph Francis
Byron Jaucian
Miriam Serrano
Derrick Williams
Zahid Syed
Table of Contents

Company Overview ......................................................................................................................................... 3


Analysis of Income and Cash Flow ................................................................................................................ 3
Industry Focus ................................................................................................................................................. 4
Competitive Outlook........................................................................................................................................ 4
Assumptions & Forecast ................................................................................................................................ 5
Discounted Cash Flow Valuation ................................................................................................................... 7
Comparable Companies Valuation ................................................................................................................. 8
Conclusion ....................................................................................................................................................... 9
Appendix A: Balance Sheet .......................................................................................................................... 10
Appendix B: Income Statement .................................................................................................................... 11
Appendix C: Cash Flow Statement............................................................................................................... 12
Appendix D: Capital Structure and WACC ................................................................................................... 13
Appendix E: DCF Model ................................................................................................................................ 15
Appendix F: Comparable Companies .......................................................................................................... 16
Bibliography .................................................................................................................................................. 17

2
Company Overview
AZZ Inc., formerly known as Aztec Manufacturing, is a global company that provides products and services
such as galvanizing, welding solutions, specialty electrical equipment, and engineered services. AZZ Inc.
serves numerous markets such as:

power generation industrial electrical utilities


nuclear petrochemical construction
power transmission and renewable recreation
distribution bridge and highway agriculture
In 1956, when Aztec Manufacturing first established its headquarters in Fort Worth, Texas, they began as a
manufacturer and distributor of steel, iron, metal, and plastic products for the oil field industry. Six years later,
they became one of the three largest producers in the United States due to an increase in manufacturing and
sales of pup joints commonly used for oil drilling.
In the mid-1960s, Aztec Manufacturing expanded its services to galvanizing by building its first hot dip
galvanizing plant in Crowley, Texas. Galvanizing, which is used commonly used today, is a zinc protection
coating for steel and metal in order to protect and prolong the life of the material. Due to this focus in
galvanizing, Aztec has increased sales because of this widely used process for the protection of steel and
metal.
In the 1990s, Aztec Manufacturing pursued acquisitions such as Rig-A-Lite Inc., a leading manufacturer of
industrial lighting in oil, gas, and other hazardous environments. They also acquired the Calvert Company, a
company in the field of electrical bus duct systems design and installation, which helped Aztec expand their
market into adjacent industries. Later in the mid-1990s, they became the largest galvanizing company in the
United States. Aztec Manufacturing was listed on the New York Stock Exchange as AZZ and a few years later,
Aztec became AZZ Inc. They continued to acquire businesses that were involved in long distance power
transmission, welding, nuclear supplies, and also added new electrical products.

Analysis of Income and Cash Flow


AZZ Inc.s annual income for 2016 is $903.2 million and $816.7 million in 2015, and their sales are divided into
two segments: energy and galvanizing. The energy segment is $500.8 million and galvanizing amounts to
$402.4 million in 2016. Although galvanizing services used to be the primary revenue driver, the energy
segment currently provides the majority of AZZ Inc.s Sales.
Additionally, there was a net cash in operating activities of $143.6 million in 2016 compared to $118.2 million in
2015. This increase was due to higher earnings and changes in working capital. Net cash used in investing
activities for fiscal 2016 was $99.3 million which is significantly more than the $39.6 million in 2015.
The increase in investing activities is primarily because of the acquisition of US Galvanizing, LLC and Alpha
Galvanizing Inc. and an increase in capital expenditures to a new galvanizing plant in Reno, Nevada. AZZ Inc.
AZZ Inc. relies on growth through acquisitions to utilize economies of scale to efficiently and effectively
improve operations. AZZ Inc. used $25.3 million in cash in 2016 compared to $82.4 million for financing
activities. The decrease in cash for 2016 was primarily a result of reduced net principal payments.

3
Industry Focus
AZZ Inc. generates revenues primarily through Energy and Galvanizing services. AZZ's Energy Segment is a
leading provider of specialized products and services designed to support industrial, nuclear, and electrical
applications. Product offerings include:

custom switchgear explosion proof and hazardous duty lighting


electrical enclosures nuclear safety- related equipment and
medium and high voltage bus ducts tubular products

AZZ's Energy Segment also focuses on extension of the life cycle for power generation, refining, and industrial
infrastructure through automated weld overlay solutions for corrosion and erosion mitigation.

The Galvanizing Segment provides hot dip galvanizing to the steel fabrication industry through facilities located
throughout the United States and Canada. Hot dip galvanizing is a metallurgical process in which molten zinc
is applied to steel. The zinc alloying renders corrosion protection to fabricated steel for extended periods of up
to 50 years.

The volatile nature of zinc and steel prices has put severe pressure on the revenue growth of the industry
during the past five years. However, the zinc prices have steadily recovered, which has allowed the industry
operators to pass the overall zinc cost onto the customers to help with their profits. The revenue for the
industry is expected to grow by 8.7% during 2016.
Competitive Outlook
The markets for AZZs Energy Segment are highly competitive and consist of large multi-national companies,
along with numerous small independent companies. Competition is based primarily on product quality, range of
product line, price and service.

AZZ Inc. claims to offer some of the most technologically advanced solutions and engineering resources,
which allow AZZ Energy to be ideally positioned to meet general and even specific product demands. AZZ sells
Energy Segment products through a manufacturers representatives, distributors, agents and internal sales
force. They are not dependent on any single customer for this segment, and the loss of any single customer
would not have a materially adverse effect on their consolidated revenues or net income.
Galvanizing is a highly competitive business. AZZ competes with other galvanizing companies, captive
galvanizing facilities operated by manufacturers, and alternate forms of corrosion protection such as material
selection (stainless steel or aluminum) or barrier protections such as powder coating, paint, and weathering
steel. Galvanizing markets are generally limited to areas within a relatively close proximity to galvanizing plants
due to freight cost.
Zinc, the principal raw material used in the galvanizing process, is currently readily available, but is subject to
volatile pricing. AZZ manages exposure to commodity pricing of zinc by utilizing agreements with zinc suppliers
that include fixed costs contracts to guard against escalating commodity prices. AZZ also secures firm pricing
for natural gas supplies with individual utility companies.

4
Assumptions
Income Statement
Revenue Assumptions
The revenue growth rate for periods ranging from 2017 to 2021 was
primarily dependent on previous revenue growth, AZZ Inc.s performance
against the NYSE market, and growth potential for AZZ Inc.s Energy and
Galvanizing segment. The projected revenue growth rates and terminal
growth rate is shown below:

Revenue Growth Rates


Feb-28- Feb-28- Feb-28- Feb-29- Feb-28- Terminal
2017 2018 2019 2020 2021
11.01% 9.56% 8.00% 6.00% 4.00% 2.00%

The Energy segment increased 9.3% in fiscal 2016 from fiscal 2015. The
increase in net sales was mainly due to greater project scope expansion
in specialty welding services for petroleum refining. Improved technology
has enabled and sustained growth within the Energy segment

The Galvanizing Segment increased 12.3% from prior year sales. The
acquisition of US Galvanizing, LLC and Alpha Galvanizing Inc. led to the
increase in sales and overall steel processed in the current year.

AZZ Inc. has consistently produced better returns within the last five
years than the Index for the NYSE; we expect this trend to continue for
the next five years. Additionally, we believe that it will be quite difficult for
AZZ to maintain a constant growth rate due to its reliance on growth
through acquisitions. Therefore, revenue growth will decline with every
year.

Although acquisition growth has enabled them to improve sales, a lack of


potential opportunities in the future and higher interest rates could limit
the number of potential future acquisitions. The Energy and Galvanizing
growth rates were averaged according to their projected weights in overall
sales.

Expense Assumptions
Cost of Goods Sold % of Revenue
Selling, General & Administrative Expenses % of Revenue
Interest Expense Future interest payments shown in 10-K
Non-operating Exp./Income 3 Year historical average
Income Tax Effective Tax Rate of 26.4% during Fiscal 2016 will be
carried forward

A percentage of revenue was used to project expenses that have


historically trended with revenue. Other expenses were averaged over 3
prior years and the average was carried forward to all projected years.

5
Balance Sheet
Working Capital Assets - % of Revenue
Deferred Tax Asset 2016 DTA is carried through projected years
Gross Property, Plant, and Equipment % of Revenue
Working Capital Liabilities % of Cost of Goods Sold
Deferred Tax Liability 2016 DTL is carried through projected years
Long-Term Debt LT Debt payments are outlined in the 10-K; No new
debt issuances will be assumed
Common Stock No new common stock issuances will be assumed

A percentage of revenue was used to project assets that have historically


trended with revenue. Certain liabilities were projected using a
percentage of cost of goods sold. This companys Cost of Goods Sold is
referred to as Cost of Sales in the annual 10-K. This item includes
expenses such as depreciation and all direct material, direct labor, and
manufacturing overhead costs associated. Accounts such as Goodwill,
Other Intangibles, Other Long-Term Assets, Other Non-Current Liabilities,
Treasury Stock, and Comprehensive Income are quite difficult to project;
therefore, the 2016 ending balance was carried forward for all future
projected years.

Forecast
Income Statement
Although, revenue growth rate is declining each year, the total amount of
revenues has improved from $903 million to $1.307 billion within a 5-year
span. As seen in Appendix B, the increase in revenue is also expected to
cause a higher cost of sales. Net Income has also steadily increased from
$76.79 million to $139.57 million.
Balance Sheet
The majority of AZZ Inc.s balance sheet accounts have steadily risen
over the projected years. Due to scheduled debt payments, the overall LT
debt balance has steadily declined. The last projected year LT Debt
balance was determined by finding an average of the prior revolver debt
used. We are assuming that additional debt and common stock will not be
issued. The cash balance was found through the cash flow statement and
the cash and cash equivalents account was adjusted to balance the
balance sheet as shown in Appendix A
Free Cash Flow Projection
NOPAT is expected to continually increase for AZZ Inc. Due to the
relatively stable capital expenditures and smaller amount of additional net
operating working capital needed, projected free cash flow is expected to
increase from $94 million in fiscal 2016 to $137.39 million in fiscal 2021.
However, it must be noted that capital expenditures do not include
acquisitions. AZZ Inc. has historically relied on acquisitions to expand its
operations and achieve growth. Unlevered free cash flow will certainly be
used for potential future acquisitions.

6
Discounted Cash Flow Valuation
Capital Structure
The Capital Structure of AZZ Inc. ranges from a revolving line of credit to
common stock. The breakdown of AZZ Inc.s capital structure is shown in
Appendix D. AZZ currently has two outstanding debt issuances that have
an associated coupon rate. Due to the decrease in interest rates after the
time of issuance, the present value for these two senior notes have
increased.

AZZ Inc. also has a floating rate term facility and revolving line of credit.
The revolving line of credit changes from year to year depending on AZZ
Inc.s need for capital. The variety of different debt issuances has caused
AZZ Inc. to adhere to various financial covenants such as the
maintenance of certain leverage and interest coverage ratios.
Weighted Average Cost of Capital
The revolving credit line and term facility loan have a floating rate. The
floating rate is based on the LIBOR rate and a set margin. This floating
rate was computed and will be the cost of debt for the revolver and the
term facility loan.
Source: Bankrate
As shown in Appendix D, the senior notes cost of debt was calculated
using a synthetic YTM based on the risk free 10 Year treasury and a
WACC default spread determined from the interest coverage ratio. The market
Investor After-Tax
Type Market Values Weights Cost
values of debt are shown in Appendix D, due to a decrease in interest
Senior Notes rates, the present value for the senior notes have increased.
(100 Mill.) $30.08 1.46% 2.55%
Senior Notes
The market capitalization for AZZ is $1,734 billion. The bottom up beta
(125 Mill.) $135.06 6.56% 2.55%
Revolving Credit $95.00 4.62% 2.42%
was constructed using a set of comparable companies. After gathering
Term Facility $53.91 2.62% 2.42% the comparable companies debt to equity ratio, effective tax rates, and
Equity Value $1,743.44 84.74% 7.48% levered betas, an average unlevered beta was found. This average
Totals $2,057.49 100.00%
unlevered beta of .77 was used to find the AZZ Inc.s estimated levered
WACC 6.7208%
beta of 1.099.
Values are in millions of USD
Enterprise and Equity Value The Capital Asset Pricing Model was then used to find the estimated cost
Present Value of Total of equity of 7.48% using the risk-free rate as of 11/25/16, equity risk
Free Cash Flow s $474.79 premium as of 11/01/16, and the estimated levered beta.
Term inal Grow th Rate Utilizing the cost of equity, cost of debt, and appropriate market values,
(Conservative estim ate slightly the approximate WACC is 6.7208%
below U.S. GDP Grow th Rate)
Enterprise and Equity Value
2.00% The DCF model, shown in Appendix E, effectively calculates the
Term inal Value $2,968.40 Enterprise Value of AZZ Inc. by using the projected free cash flows,
Present Value of Term inal Value $2,144.26
WACC, and terminal growth rate. Although the current GDP growth rate is
Estimated Enterprise Value $2,619.05
approximately 2.5%, we have decided to use a conservative growth rate
of 2% for valuation purposes.
Cash & Short Term Investments 15.9
Interest Bearing Debt
$ 314.00 The Equity Value is then found by adding cash & short-term investments
(Market Value)
Equity Value $2,320.95 and subtracting the interest bearing debt from the Enterprise Value. The
calculated Enterprise Value and Equity value from the DCF Analysis will
Values are in millions of USD
be weighted at 50% to the overall valuation of this company.
7
Comparable Companies Valuation
The 5 companies used for the comparable company valuation are:
Powell Industries
AAON, Inc.
Atkore International Group Inc.
Platform Specialty Products Corporation
Valmont Industries

The majority of the selected comparable companies operate within the same industries and therefore are
subject to similar material costs and regulation risks. A brief justification for each of the selected comparable
companies is outlined below.

Powell Industries, Inc.


Even though Powell Industries, Inc. and AZZ Inc. produce different products, they still serve the same target
market. Both companies serve the power generation market, transmission market, distribution market, and the
refining and industrial industries markets worldwide.

AZZ Inc. and Powell Industries are located in the same region, the United States. Both companies face the
same industry risk, and both companies have analogous revenue drivers. Additionally, AZZ Inc. and Powell
Industries have similar gross margins.

AAON, Inc.
AAON, Inc. is a primary competitor of AZZ Inc. Both companies produce products that serve the power
generation market, transmission market, distribution market, and refining and industrial industries market. Both
of the companies have a similar gross margin, LTM EBIT, and market capitalization. Both companies are
located in the same geographical region, the United States.

Atkore International Group


Atkore and AZZ Inc. are similar in overall business model. Atkore produces electrical conduit, cable products,
and pipe and tube. This company does not specialize in galvanizing, but utilizes galvanization to produce steep
pipe and tube. Financially, both companies have similar LTM gross margins, market capitalization, LTM EBIT,
and even overall enterprise value.

Platform Specialty Products Corporation


Platform Specialty primarily operates as a producer of specialty chemical products which is quite different than
AZZ Inc. However, this company still serves the electronics, electronics assembly materials, and industrial
markets by supplying chemicals to aid these different markets. AZZ Inc. and Platform Specialty have similar
LTM EBIT margins and market capitalization.

Valmont Industries, Inc.


AZZ Inc. and Valmont Industries serve similar end-user markets, such as the industrial market. Both
companies main portion of sales/revenues are generated in North America. These two companies operate in
the same geographical location, have similar capital structures, and their EPS growth rates are analogous.

8
There is not a single comparable company that can be entirely compared
to AZZ, Inc. However, each of the selected companies offer different
similarities which will aid in providing an overall relative valuation.
Com parable Com pany Analysis
Com pany EV/EBIT Ratio We have decided to use an EV/EBIT ratio for valuation purposes. This
Pow ell Industries, Inc. 15.8x ratio accounts for the difference in capital structures between the selected
AAON, Inc. 21.4x
Atkore International Group Inc. 16.8x
comparable companies and incorporates depreciation expense.
Platform Specialty 20.2x Additionally, the EV/EBIT ratio is applicable to debt and equity investors
Products Corporation because interest expense is not accounted for in this ratio.
Valmont Industries, Inc. 16.6x
Average EV/EBIT 18.2x The exhibits shown to the left outline the valuation process using
AZZ 2016 EBIT $123.19 comparable companies. As shown, an illiquidity discount of 20% was
Im plied Enterprise Value $2,237.09 used due to the companys overall size and cash flow patterns, and
Illiquidity Discount 20%
Enterprise Value $1,789.68
because we are valuing this company as if it were private.
Cash & Short Term Investments 15.9
The average EV/EBIT ratio of the comparable companies was 18.2x. in
Interest Bearing Debt $ 314.05
Equity Value $1,491.53 order to establish a range of potential values, we have decided to use
16.2x to 20.2x as the relative valuation range for this company. The
Values are in millions of USD relative valuation will be weighted at 50% and it will be combined with the
enterprise value and equity value calculated from the DCF model.

Conclusion
Final Valuation Range AZZ Inc. has been growing due to increases in their energy and
EV/EBIT Multiple 15.2x
galvanizing services. This company primarily achieves growth by
EV/EBIT Multiple 21.2x
Relative Valuation (EV) $1,497.97
acquiring companies.
Relative Valuation (EV) $2,089.27
We believe that this acquisition-based mentality could potentially slow the
Relative Valuation Range (50%):
$1,497.97 - $2,089.27
current growth of the company as interest rates are expected to rise
DCF Enterprise Value (50%) $2,619.05
which would limit additional debt to aid in pursuing acquisitions.
Final EV Valuation Low er $2,058.51
Additionally, future acquisition opportunities may be limited. We believe
Final EV Valuation Upper $2,354.16
this company will maintain its trend of receiving much higher returns than
Final EV Valuation Range: the overall NYSE market.
$2,058.51 - $2,354.16
Final Equity Value Upper $1,760.36 The combination of AZZ Inc.s positive cash flows, ability to make future
Final Equity Value Low er $2,056.01 debt and interest payments, and current market share allow this company
to continue to improve its value.
Final Equity Valuation Range:
$1,760.36 - $2,056.01

Values are in millions of USD

9
Balance Sheet
Com parative Years Feb-29-2012 Feb-28-2013 Feb-28-2014 Feb-28-2015 Feb-29-2016 2/29/2017 2/29/2018 2/29/2019 Feb-29-2020 2/29/2021
ASSETS
Cash And Equivalents $ 143.30 $ 55.60 $ 27.57 $ 22.53 $ 40.19 $ 75.69 $ 309.83 $ 111.28 $ 384.09 $ 421.43
Total Cash & ST Investm ents $ 143.30 $ 55.60 $ 27.57 $ 22.53 $ 40.19 $ 75.69 $ 309.83 $ 111.28 $ 384.09 $ 421.43

Accounts Receivable $ 74.65 $ 97.86 $ 116.13 $ 125.64 $ 131.42 $ 157.31 $ 172.35 $ 186.14 $ 197.30 $ 205.20
% of Revenue 16% 17% 15% 15% 15% 16% 16% 16% 16% 16%
Inventory $ 74.32 $ 95.21 $ 134.80 $ 141.37 $ 134.42 $ 165.86 $ 181.72 $ 196.26 $ 208.03 $ 216.35
% of COGS 22% 23% 25% 23% 20% 23% 23% 23% 23% 23%
Prepaid Exp. $ 2.81 $ 6.15 $ 9.88 $ 4.57 $ 3.11 $ 7.81 $ 8.56 $ 9.24 $ 9.80 $ 10.19
% of Revenue 0.60% 1.08% 1.31% 0.56% 0.34% 0.78% 0.78% 0.78% 0.78% 0.78%
Deferred Tax Assets, Curr. $ 7.65 $ 7.62 $ 7.80 $ 4.53 $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20
Other Current Assets $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Total Current Assets $ 302.74 $ 262.43 $ 296.18 $ 298.63 $ 309.33 $ 406.88 $ 672.66 $ 503.12 $ 799.43 $ 853.37

Gross Property, Plant & Equipment $ 243.00 $ 274.93 $ 340.04 $ 359.72 $ 416.70 $ 472.07 $ 517.20 $ 558.57 $ 592.08 $ 615.76
% of Revenue 52% 48% 45% 44% 46% 47% 47% 47% 47% 47%
Accumulated Depreciation $ (107.20) $ (120.50) $ (142.40) $ (163.10) $ (190.40) $ (225.79) $ (264.56) $ (306.44) $ (350.83) $ (396.99)
Net Property, Plant & Equipm ent $ 135.83 $ 154.48 $ 197.64 $ 196.58 $ 226.33 $ 246.28 $ 252.63 $ 252.13 $ 241.25 $ 218.77

Values are in millions of USD


Goodw ill $ 121.38 $ 171.89 $ 278.56 $ 279.07 $ 292.53 $ 292.53 $ 292.53 $ 292.53 $ 292.53 $ 292.53
Other Intangibles $ 44.54 $ 103.43 $ 170.43 $ 153.86 $ 148.20 $ 148.20 $ 148.20 $ 148.20 $ 148.20 $ 148.20
Appendix A: Balance Sheet

Other Long-Term Assets $ 2.29 $ 1.99 $ 10.45 $ 8.77 $ 6.98 $ 6.98 $ 6.98 $ 6.98 $ 6.98 $ 6.98
Total Assets $ 606.77 $ 694.20 $ 953.25 $ 936.91 $ 983.37 $ 1,100.86 $ 1,373.00 $ 1,202.95 $ 1,488.38 $ 1,519.85

LIABILITIES

Accounts Payable $ 24.40 $ 28.92 $ 38.83 $ 49.58 $ 46.75 $ 53.51 $ 58.62 $ 63.31 $ 67.11 $ 69.80
% of Operating Expenses & COGS 5% 5% 5% 6% 5% 5.34% 5.34% 5.34% 5.34% 5.34%
Accrued Exp. $ 22.91 $ 30.89 $ 39.90 $ 38.70 $ 47.46 $ 51.33 $ 56.24 $ 60.74 $ 64.38 $ 66.96
% of Operating Expenses & COGS 5% 5% 5% 5% 5% 5.12% 5.12% 5.12% 5.12% 5.12%
Curr. Port. of LT Debt $ 14.29 $ 14.29 $ 20.85 $ 21.87 $ 23.19 $ 16.63 $ 162.16 $ - $ 125.00 $ -

Curr. Income Taxes Payable $ 1.00 $ 0.57 $ 5.36 $ 2.89 $ 2.70 $ 2.50 $ 2.50 $ 2.50 $ 2.50 $ 2.50

Unearned Revenue, Current $ 12.26 $ 40.94 $ 36.75 $ 33.08 $ 24.89 $ 43.08 $ 47.20 $ 50.97 $ 54.03 $ 56.19
% of Revenue 3% 7% 5% 4% 3% 4.30% 4.30% 4.30% 4.30% 4.30%
Other Current Liabilities $ 3.13 $ 3.30 $ 2.32 $ 3.03 $ 3.42 $ 4.62 $ 5.06 $ 5.47 $ 5.79 $ 6.03
% of Revenue 1% 1% 0% 0% 0% 0.46% 0.46% 0.46% 0.46% 0.46%
Total Current Liabilities $ 77.98 $ 118.90 $ 144.02 $ 149.14 $ 148.41 $ 171.67 $ 331.79 $ 183.00 $ 318.82 $ 201.48

Long-Term Debt $ 210.71 $ 196.43 $ 384.77 $ 315.98 $ 303.79 $ 280.60 $ 263.97 $ 101.81 $ 101.81 $ 95.54
Def. Tax Liability, Non-Curr. $ 30.47 $ 36.40 $ 39.44 $ 51.74 $ 49.96 $ 49.96 $ 49.96 $ 49.96 $ 49.96 $ 49.96
Other Non-Current Liabilities - $ 8.54 $ 9.12 $ - $ - $ - $ - $ - $ - $ -
Total Liabilities $ 319.17 $ 360.27 $ 577.34 $ 516.86 $ 502.16 $ 502.23 $ 645.72 $ 334.76 $ 470.59 $ 346.98

Common Stock $ 25.22 $ 25.38 $ 25.58 $ 25.73 $ 25.87 $ 25.87 $ 25.87 $ 25.87 $ 25.87 $ 25.87
Additional Paid In Capital $ 14.20 $ 17.65 $ 21.95 $ 27.71 $ 35.15 $ 35.15 $ 35.15 $ 35.15 $ 35.15 $ 35.15
Retained Earnings $ 247.06 $ 294.09 $ 339.40 $ 389.45 $ 450.75 $ 568.21 $ 696.86 $ 837.77 $ 987.37 $ 1,142.44
Treasury Stock $ (0.20) $ - $ - $ - $ - $ - $ - $ - $ - $ -
Comprehensive Inc. and Other $ 1.30 $ (3.20) $ (11.00) $ (22.80) $ (30.60) $ (30.60) $ (30.60) $ (30.60) $ (30.60) $ (30.60)
Total Com m on Equity $ 287.61 $ 333.93 $ 375.91 $ 420.05 $ 481.22 $ 598.63 $ 727.28 $ 868.19 $ 1,017.80 $ 1,172.86

Total Equity 287.608765 333.934474 375.913 420.052 481.216 $ 598.63 $ 727.28 $ 868.19 $ 1,017.80 $ 1,172.86

Total Liabilities And Equity 606.774565 694.204814 953.253 936.914 983.371 $ 1,100.86 $ 1,373.00 $ 1,202.96 $ 1,488.39 $ 1,519.84

10
Income Statement
For the Fiscal Period Ending Feb-29-2012 Feb-28-2013 Feb-28-2014 Feb-28-2015 Feb-29-2016 Feb-28-2017 Feb-28-2018 Feb-28-2019 Feb-29-2020 Feb-28-2021

Revenues
Energy Revenue Growth 23.47% 78.13% 10.14% 9.27% 12.00% 10.00% 8.00% 6.00% 4.00%
Energy $189.20 $233.60 $416.10 $458.30 $500.80 $560.90 $616.99 $666.34 $706.33 $734.58
Galvanizing Revenue Growth 20.40% -0.42% 6.76% 12.31% 9.76% 9.00% 8.00% 6.00% 4.00%
Galvanizing $279.90 $337.00 $335.60 $358.30 $402.40 $441.69 $481.44 $519.96 $551.16 $573.20
Total Revenue Growth 21.64% 31.74% 8.65% 10.59% 11.01% 9.56% 8.00% 6.00% 4.00%
Total Revenues $469.10 $570.60 $751.70 $816.70 $903.20 $1,002.68 $1,098.54 $1,186.42 $1,257.60 $1,307.89

Cost Of Goods Sold $344.53 $406.42 $546.02 $608.34 $672.58 $734.49 $804.71 $869.08 $921.22 $958.07
% of Revenue 73.44% 71.23% 72.64% 74.49% 74.47% 73.25% 73.25% 73.25% 73.25% 73.25%
Gross Profit 124.6 164.2 205.7 208.3 230.6 $268.19 $293.83 $317.34 $336.37 $349.83

Selling General & Admin Exp. $48.86 $66.19 $105.59 $97.57 $107.42 $120.13 $131.61 $142.14 $150.67 $156.70
% of Revenue 10.42% 11.60% 14.05% 11.95% 11.89% 11.98% 11.98% 11.98% 11.98% 11.98%
R & D Exp. - - - - - - - - - -
Depreciation & Amort. - - - - - - - - - -
Other Operating Expense/(Income) - - - - - - - - - -

Other Operating Exp., Total $48.86 $66.19 $105.59 $97.57 $107.42 $120.13 $131.61 $142.14 $150.67 $156.70

Values are in millions of USD


Operating Incom e $75.72 $97.98 $100.11 $110.78 $123.19 $148.06 $162.22 $175.19 $185.70 $193.13

Interest Expense ($13.90) ($13.10) ($18.40) ($16.60) ($15.20) ($12.82) ($11.75) ($8.07) ($6.78) ($6.78)
Interest and Invest. Income - - - - - - - - - -
Net Interest Exp. ($13.90) ($13.10) ($18.40) ($16.60) ($15.20) ($12.82) ($11.75) ($8.07) ($6.78) ($6.78)

Currency Exchange Gains (Loss) - - - - - - - - - -


Other Non-Operating Inc. (Exp.) $2.02 $1.16 $0.00 ($2.70) ($3.10) ($0.52) ($0.52) ($0.52) ($0.52) ($0.52)
Appendix B: Income Statement

EBT Excl. Unusual Item s $63.81 $86.07 $81.67 $91.56 $104.94 $134.72 $149.94 $166.60 $178.41 $185.83

Restructuring Charges - - - ($4.00) ($0.90) - - - - -


Impairment of Goodw ill - - - - - - - - - -
Gain (Loss) On Sale Of Assets ($0.20) $8.30 $8.04 $2.53 $0.33 $3.80 $3.80 $3.80 $3.80 $3.80
Legal Settlements - - $4.20 - - - - - - -
Other Unusual Items - - - - - - - - - -
EBT Incl. Unusual Item s $63.64 $94.37 $93.91 $90.13 $104.37 $138.52 $153.74 $170.40 $182.20 $189.63

Income Tax Expense $22.91 $33.91 $34.31 $25.19 $27.58 $36.57 $40.59 $44.99 $48.10 $50.06
Effective Tax Rate Assumption - 26.4%
Earnings from Cont. Ops. $40.74 $60.46 $59.60 $64.94 $76.79 $101.95 $113.15 $125.41 $134.10 $139.57

Earnings of Discontinued Ops. - - - - - - - - - -


Extraord. Item & Account. Change - - - - - - - - - -
Net Incom e to Com pany $40.74 $60.46 $59.60 $64.94 $76.79 $101.95 $113.15 $125.41 $134.10 $139.57

Minority Int. in Earnings - - - - - - - - - -


Net Incom e $40.74 $60.46 $59.60 $64.94 $76.79 $101.95 $113.15 $125.41 $134.10 $139.57

11
Cash Flow Statement
Com parative Years Feb-29-2012 Feb-28-2013 Feb-28-2014 Feb-28-2015 Feb-29-2016 Feb-28-2017 Feb-28-2018 Feb-28-2019 Feb-29-2020 Feb-28-2021

Net Incom e $40.74 $60.46 $59.60 $64.94 $76.79 $101.95 $113.15 $125.41 $134.10 $139.57
Depreciation & Amort. $18.85 $19.36 $25.11 $28.09 $31.22 $35.39 $38.77 $41.88 $44.39 $46.16
% of PP&E 8% 7% 7% 8% 7% 7% 7% 7% 7% 7%
Amort. of Goodw ill and Intangibles $3.74 $10.00 $18.20 $18.00 $16.20 $16.20 $16.20 $16.20 $16.20 $16.20
Depreciation & Am ort., Total $22.59 $29.36 $43.31 $46.09 $47.42 $51.59 $54.97 $58.08 $60.59 $62.36

Other Amortization - $0.29 $1.42 $1.43 $1.35 $1.35 $1.35 $1.35 $1.35 $1.35
(Gain) Loss From Sale Of Assets - ($8.30) ($8.00) ($2.50) ($0.30) ($3.80) ($3.80) ($3.80) ($3.80) ($3.80)
Asset Writedow n & Restructuring Costs - - - 2.7 0.3 $ - $ - $ - $ - $ -
Stock-Based Compensation $2.93 $3.18 $3.70 $4.08 $4.54 $5.37 $5.88 $6.35 $6.73 $7.00
% of Cost of sales 1% 1% 1% 1% 1% 1% 1% 1% 1% 1%
Provision & Write-off of Bad debts $0.36 $0.45 ($0.10) $0.46 ($1.10) $0.01 $0.01 $0.01 $0.01 $0.01
Other Operating Activities $2.99 $3.37 $0.84 $15.82 $2.71 $7.13 $7.81 $8.44 $8.94 $9.30
% of Cost of Sales 1% 1% 0% 3% 0% 1% 1% 1% 1% 1%
Change in Acc. Receivable ($8.50) ($9.70) $26.22 ($15.00) $4.90 ($25.89) ($15.04) ($13.79) ($11.17) ($7.89)
Change In Inventories $0.31 ($4.50) ($6.20) ($0.90) $11.12 ($31.44) ($15.86) ($14.54) ($11.77) ($8.32)
Change in Acc. Payable 2.4 1.0 (4.2) 11.0 (2.2) $6.76 $5.12 $4.69 $3.80 $2.68
Change in Other Net Operating Assets $0.24 $17.10 ($9.30) ($9.90) ($1.90) ($7.03) ($7.03) ($7.03) ($7.03) ($7.03)

Values are in millions of USD


Cash from Ops. $ 64.06 $ 92.74 $ 107.28 $ 118.16 $ 143.59 $ 105.99 $ 146.56 $ 165.17 $ 181.75 $ 195.23

Capital Expenditure (19.8) (24.9) (43.5) (29.4) (39.9) ($44.90) ($49.19) ($53.13) ($56.31) ($58.57)
% of Revenue 4% 4% 6% 4% 4% 4% 4% 4% 4% 4%
Sale of Property, Plant, and Equipment $0.30 $11.84 $8.21 $1.33 $1.14 $3.80 $3.80 $3.80 $3.80 $3.80
Cash Acquisitions ($27.40) ($137.10) ($275.70) ($11.50) ($60.60) ($60.60) ($60.60) ($60.60) ($60.60) ($60.60)
Divestitures - - - - - $ - $ - $ - $ - $ -
Invest. in Marketable & Equity Securt. - - - - - $ - $ - $ - $ - $ -
Net (Inc.) Dec. in Loans Originated/Sold - - - - - $ - $ - $ - $ - $ -
Other Investing Activities - - - - - $ - $ - $ - $ - $ -
Cash from Investing ($46.80) ($150.10) ($311.00) ($39.60) ($99.30) ($101.65) ($105.95) ($109.88) ($113.07) ($115.32)
Appendix C: Cash Flow Statement

Short Term Debt Issued - - - - - $ - $ - $ - $ - $ -


Long-Term Debt Issued - - $272.00 $10.98 $181.48 $ - $ - $ - $ - $ -
Total Debt Issued - - $272.00 $10.98 $181.48 $ - $ - $ - $ - $ -
Short Term Debt Repaid - - - - - $ - $ - $ - $ - $ -
Long-Term Debt Repaid - ($18.10) ($77.10) ($78.80) ($192.30) ($23.19) ($16.63) ($162.16) $0.00 ($125.00)
Total Debt Repaid - ($18.10) ($77.10) ($78.80) ($192.30) ($23.19) ($16.63) ($162.16) $0.00 ($125.00)

Issuance of Common Stock 0.0 0.0 - - $ - $ - $ - $ - $ - $ -

Common Dividends Paid ($12.60) ($13.40) ($14.30) ($14.90) ($15.50) ($15.50) ($15.50) ($15.50) ($15.50) ($15.50)
Total Dividends Paid ($12.60) ($13.40) ($14.30) ($14.90) ($15.50) ($15.50) ($15.50) ($15.50) ($15.50) ($15.50)

Special Dividend Paid - - - - - $ - $ - $ - $ - $ -


Other Financing Activities $0.20 $1.18 ($4.30) $0.26 $1.03 ($1.01) ($1.01) ($1.01) ($1.01) ($1.01)
Cash from Financing ($12.40) ($30.40) $176.33 ($82.40) ($25.30) ($39.70) ($33.13) ($178.67) ($16.51) ($141.51)

Foreign Exchange Rate Adj. $0.06 $0.06 ($0.70) ($1.20) ($1.30) ($1.07) ($1.07) ($1.07) ($1.07) ($1.07)
Net Change in Cash $4.91 ($87.70) ($28.00) ($5.00) $17.66 ($36.43) $6.42 ($124.44) $51.11 ($62.66)

12
Appendix D: Capital Structure and WACC

Capital Structure Elements


Investor Type Brief Description Basis of Cost
Revolving Line of Credit Interest rate w ill be based on a Eurodollar
w ith Bank of Am erica The revolving line of credit amount is 225 Rate (LIBOR, depending on borrow ing
and Other Lenders million. This Credit agreement w as term) plus a 1-2% margin depending on
established on March 27th, 2013. The leverage ratio. There w ill also be a
Credit Agreement is needed for w orking Commitment fee for unfunded portion
capital needs, capital improvements, ranging from .2 - .3% per year, depending
dividends, and acquisitions. There are on Leverage Ratio.
various financial covenants such as a
maximum leverage ratio of 3.25 to 1.
Senior Notes The Senior Note amount is 100 million. This Coupon Rate: 6.24%. A synthetic YTM w ill
Note Purchase agreement w as issued on be used for WACC calculation
March 31, 2008.
Senior Notes The Senior Note amount is 125 million. The Coupon Rate: 5.24%. A synthetic YTM w ill
Note Purchase Agreement w as entered on be used for WACC calculation
March 31, 2008.
Term Facility The term facility amount is 75 million. This Interest rate w ill be based on a Eurodollar
w ith Bank of Am erica Credit agreement w as established on Rate (LIBOR, depending on borrow ing
and Other Lenders March 27th, 2013. The Credit Agreement is term) plus a 1-2% margin depending on
needed for w orking capital needs, capital leverage ratio. There w ill also be a
improvements, dividends, and acquisitions. Commitment fee for unfunded portion
There are various financial covenants ranging from .2 - .3% per year, depending
such as a maximum leverage ratio of 3.25 on Leverage Ratio.
to 1. The term facility requires quarterly
principal and interest payments w hich w ill
finish on March 27th, 2018.

Com m on Stock At $1.00 Par Value, 100,000 shares have The Capital Asset Pricing Model w ill be
been authorized. Currently there are used to find the Cost of Equity
approximately 26,119 diluted shares as of
August 31, 2016. For the purposes of find
ing a current equity value, the current
share price w ill also be needed. The
current Share Price as of November 27th,
2016 is $66.75

13
Appendix D: Capital Structure and WACC

Cost of Debt
*Since the exact borrow ing term cannot be know ,
an average of the 1 month to 1 year LIBOR Rate w ill be used
Revolving Credit and Term Facility Cost Cost of Equity using CAPM
LIBOR RATE 1.0406%
LIBOR Margin 2% Risk Free Rate (10-Year) as of11/25/16 2.36%
Com m itm ent Fee for Unfunded Portion 0.25% Equity Risk Premium as of 11/01/2016 4.89%
Cost of Revolving Credit and Term Facility (YTM) 3.2906%
Revolving Credit Market Value Levered Beta 1.099
*The Book Value w ill be the assum m ed Market Value due to the Cost of Equity 7.48%
flexible am ount and duration w ithin a Revolving Credit Facillity
Market Value $ 95.00
Term Facility Market Value
*The Book Value w ill be the assum m ed Market Value due to the lack of a fixed coupon rate.
Paym ent for this term loan is based on a floating rate.
Market Value $ 53.91
Senior Note - 100 Million Cost
Synthetic YTM Calculation
Rf Rate (10 Year Treasury as of 11/25/16) 2.36%
AZZ EBIT as of 02/29/2016 $123.19
WACC
Interest Expense as of 02/29/2016 $15.20 Investor After-Tax
Interest Coverage Ratio 8.10 Type Market Values Weights Cost
Rating A1/A+
Default Spread 1.1% Senior Notes
Synthetic YTM 3.46% (100 Mill.) $30.08 1.46% 2.55%
Market Value Calculation
PV $1,052.84
Senior Notes
YTM 3.46% (125 Mill.) $135.06 6.56% 2.55%
PMT (Coupon Rate) $62.40
Revolving Credit $95.00 4.62% 2.42%
FV $1,000.00
Number of Years 2 Term Facility $53.91 2.62% 2.42%
Equity Value $1,743.44 84.74% 7.48%
Book Value Amount $28.57
Market Value Percentage 1.05284 Totals $2,057.49 100.00%
Market Value of Note $ 30.08 WACC 6.7208%
Senior Note - 125 Million Cost
Market Value Calculation
PV $1,080.46
YTM 3.46%
FV $1,000.00
PMT $52.40
Number of Years 5.00

Book Value Amount $125.00


Market Value Percentage 1.08046
Market Value of Note $135.06

Cost of Equity
Market Value of Equity
Fully Diluted Shares (2016) 26.12
Current Share Price (as of 11/27/16) $66.75
Market Capitalization $1,743.44
Company Comparison for Beta Calculation
Com pany Nam e 5 Year Beta
Pow ell Industries, Inc. 0.63
AAON, Inc. 0.90
Atkore International Group Inc. 1.14
Platform Specialty Products Corporation 3.07
Valmont Industries, Inc. 1.00
Com pany Debt to Equity Ratio Effective Tax Rate Unlevered Beta
Pow ell Industries, Inc. 0.01 0.589 0.62819269
AAON, Inc. 0.00 0.359 0.9
Atkore International Group Inc. 3.16 0.342 0.369242161
Platform Specialty Products Corporation 1.83 0.236 1.280169466
Valmont Industries, Inc. 0.79 0.326 0.65360921
Bottom Up Beta
Average Unlevered Beta 0.77
AZZ Debt to Equity Ratio 0.5898
Effective Tax Rate 0.264
Levered Beta for AZZ 1.099

Values are in millions of USD

14
Appendix E: DCF Model
DCF MODEL
Year 2017 2018 2019 2020 2021
EBIT $148.06 $162.22 $175.19 $185.70 $193.13
Tax 0.264 0.264 0.264 0.264 0.264
NOPAT 108.97 119.39 128.94 136.68 142.15
Depreciation & Amortization $51.59 $54.97 $58.08 $60.59 $62.36
Change in CAPEX ($44.90) ($49.19) ($53.13) ($56.31) ($58.57)
NOWC 170.63 186.95 201.90 214.01 222.57
Change in NOWC ($27.31) ($16.31) ($14.95) ($12.11) ($8.56)
Free Cash Flow $88.35 $108.86 $118.94 $128.84 $137.38
Present Value of Free Cash Flow
(WACC as Discount Rate) $82.79 $95.58 $97.85 $99.33 $99.24

Enterprise and Equity Value


Present Value of Total Free Cash Flow s $474.79
Term inal Grow th Rate (Conservative
estim ate slightly 2.00%
Term inal Value $2,968.40
Present Value of Term inal Value $2,144.26
Estimated Enterprise Value $2,619.05
Cash & Short Term Investments 15.9
Interest Bearing Debt
$ 314.05
(Market Value)
Equity Value $2,320.90

Values are in millions of USD

15
Appendix F: Comparable Companies
Comparable Companies
Company Name Market Capitalization Total Enterprise Value LTM Total Revenue LTM EBIT NTM EPS (Capital IQ)
Latest Latest
Pow ell Industries, Inc. (NasdaqGS:POWL) $504.50 $417.60 $597.80 $26.50 0.35
AAON, Inc. (NasdaqGS:AAON) $1,788.40 $1,747.10 $389.50 $81.70 1.08
Atkore International Group Inc. (NYSE:ATKR) $1,404.70 $1,905.10 $1,545.00 $113.20 1.37
Platform Specialty Products Corporation (NYSE:PAH) $2,464.50 $7,763.80 $3,370.90 $383.40 0.68
Valm ont Industries, Inc. (NYSE:VMI) $3,304.60 $3,751.70 $2,480.90 $226.10 6.7
AZZ incorporated (NYSE:AZZ) $1,736.10 $2,021.60 $897.80 $121.20 $3.31

Values are in millions of USD

Comparable Companies
Com pany Nam e TEV/EBIT LTM - Latest
Pow ell Industries, Inc. (NasdaqGS:POWL) 15.8x
AAON, Inc. (NasdaqGS:AAON) 21.4x
Atkore International Group Inc. (NYSE:ATKR) 16.8x
Platform Specialty Products Corporation (NYSE:PAH) 20.2x
Valm ont Industries, Inc. (NYSE:VMI) 16.6x
AZZ incorporated (NYSE:AZZ) 16.7x
Sum m ary Statistics TEV/EBIT LTM - Latest
High 21.4x
Low 6.6x
Mean 16.2x
Median 16.7x

Comparable Companies
Company Name LTM Gross Margin % LTM EBITDA Margin % LTM EBIT Margin % LTM Net Income NTM LT EPS Growth Rate 5 Year Beta
Margin % (Capital IQ)
Pow ell Industries, Inc. (NasdaqGS:POWL) 19% 7% 4% 3% 11% 0.63
AAON, Inc. (NasdaqGS:AAON) 31% 24% 21% 14% 15% 0.9
Atkore International Group Inc. (NYSE:ATKR) 22% 11% 7% 1% 10% -
Platform Specialty Products Corporation (NYSE:PAH) 42% 21% 11% -6% 10% 3.07
Valm ont Industries, Inc. (NYSE:VMI) 25% 12% 9% 3% 10% 1
AZZ incorporated (NYSE:AZZ) 26% 19% 14% 8% 12% 1.41
LTM Gross Margin % LTM EBITDA Margin % LTM EBIT Margin % LTM Net Incom e NTM LT EPS Grow th Rate 5 Year Beta
Margin % (Capital IQ)
High 42.1% 24.2% 21.0% 14.09% 14.67% 3.07
Low 18.5% 6.7% 4.4% (5.98%) 5.00% 0.63
Mean 27.1% 15.6% 11.8% 4.04% 10.10% 1.31
Median 24.4% 15.3% 10.2% 2.83% 10.14% 0.94

16
Bibliography

About Us." About Us | AZZ. N.p., 2016. Web. 27 Nov. 2016.


Damadoran, Aswath. "Damadoran Online." Damadoran Online. NYU Stern, n.d. Web. 11 Nov. 2016.

Bankrate.com. "LIBOR, Other Interest Rate Indexes." LIBOR | 1 Month Libor 3 Rate 6 Month Rates Bond
Index Current One 90 Day 30 Day. Bankrate, 25 Nov. 2016. Web. 29 Nov. 2016.

IBIS World. "Metal Plating & Treating in the US." IBIS World. IBIS, n.d. Web. 29 Nov. 2016.

"Investor Relations." AZZ Financial Performance including Stock Quotes, Filings and More. N.p., 2016. Web.
27 Nov. 2016.

"Resource Center." Daily Treasury Yield Curve Rates. U.S. Department of The Treasury, n.d. Web. 29 Nov.
2016.

17