In Comes The New Year : A Transformation At Falken New Products and rapid expansion are in the cards for 2012 – In a big way.
Falken Industries, a leading global manufacturer of consumer and industrial wipes, disinfectant and other chemicals, and best known for its product conceptions for consumer, professional and industrial uses under the Clean Plus® brand, is in the middle of a notable transformation for both its product lines and the geographic coverage of its business.
Falken has spent years building a strong brand identity in Europe and the BRIC for its product conceptions, garnering a substantial share of the consumer and professional markets. A significant proportion of Falken’s revenues come from the repeat business, which provides relatively consistent sales from year to year. Roughly 72% of sales during the first nine months of 2011 were from repeat business. Of that 57% of consumer products were to women, targeted since 1997 with its high end easy application car care products. Falken’s conservative, slow steady-she-goes policies have paid off, increasing the company’s flexibility in funding its growth initiatives, including expanding its portfolio of products and widening its geographic footprint.
The company has been growing its distribution base rapidly; it now has a sizeable presence in the BRIC and Asia. It is also moving its efforts aggressively into India where it contemplates opening another production facility. An acquisition or two for 2012 is likely, consistent with the company’s strategy of acquiring production facilities adjacent to its own to favor faster-growing, higher-margin lines of business. Falken’s major presence in Europe makes virtually any coherent product or line an instant success, and the company is playing that advantage in encouraging and developing its discussions with US, Canadian and Mexican based smaller manufacturers that can greatly benefit from instant global distribution, and provide the company’s existing conceptions with an entry point to the NAFTA community.
The company’s record 4Q results should be viewed as consistent with the steady rise in performance witnessed in the last year. Revenues and profits are expected to rise in 2012. Operating margins should widen during 2012 on account of the rise in volumes that are being forecasted and the related improvement in fixed cost coverage. With greater focus on higher-margin product lines and its well known leadership in cost controls wider margins as a whole are ac virtual given. Commodities used in the company’s products will remain in a headwind in the coming year, but less so than in the past due to more aggressive hedging strategies and escalators built into more of its customer contracts.
Recent 4Q earnings per share were a record (EPS) 1 cent, representing 25%+ on the recent share price. For 2012 the company states that it expects to maintain this annual rhythm of growth and progression. This however does not factor an acquisition or any stock buybacks which have been the subject of discussion at shareholder meetings (2010) together with a shareholder’s clear mandate to management to address the matter of its undervalued stock. The company is expected to continue to expand its relationships with the investment banking community in an effort to enhance shareholder awareness and with that its stock valuation.
The company’s strong brand equity and the growth potential embedded in both its geographic expansion program and its efforts to broaden its product portfolio, makes its stock attractive for the intermediate to longer term (its pattern swing trades make the stock equally attractive to swing traders) to most members of the investment community interviewed. The company’s focus and investment program where the company enjoys both scale and technological expertise underlines that attractiveness. Finally, Falken will greatly benefit from the projected recovery in consumer, professional and industrial (which here includes government, rescue and military applications) over the next several years. When combining these factors with valuation considerations, much as the consulting firm concluded when advising the company in its fight against an unwanted suitor and rendering its Enterprise Value of 80 cents, the company at its present quote, is in my view obviously, considerably undervalued.
Falken Industries Ltd OTC : FLKI is a diversified industrial conglomerate that operates in Chemicals, Wet Wipe and Biodegradable Technology. Falken Industries Ltd is the concept behind more than 160 products distributed through a network of global platforms and the recipient of trade awards for innovations, biodegradability and environmental and health quality standards. As a reliable partner FLKI creates chemistry to help distributors and retailers in virtually all industries to be more successful. With its high-value products and intelligent solutions, FLKI plays an important role in finding answers to global challenges such as environmental protection, energy efficiency, and mobility.