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http://www.sec.gov/Archives/ed…..0ex991.htm

IMO, great quarter for ACU.  Q4 sales increased 7% from 2008, a great sign in this economy.  Outside of special charges, net income increased 22% as well.  The company aggressively reduced their debt burden and obtained a new bank facility in Jan 2010 (a vote of confidence from the banks).  Management repurchased 206k shares.

Full year numbers were down from 2008, but the company seems to be in great shape going into 2010.

I'll take a closer look at my value calculations once the full numbers are out.

Jae Jun said:Yes I sure do. No moat businesses need to be sold as soon as it reaches intrinsic value though.

Thank you for your advice. For companies with strong moat, do you buy and hold even when the price reaches intrinsic value?

Jae Jun said:well volume only really matters for the big boys. Just need to be patient to enter at a good price with thin stocks.

Do you invest in these no moat businesses?

hey jae, I think you might have mistaken acme united (ACU) with acme communication (ACME).

I am interested in ACU as well. Glad Dr. Sues write it up. I read their 10-Q and earning call transcript seems like a good company to me. Good boring business. Only big competition is Fiskar (for the scisorrs and cutting segment) and smaller competition been out with the recession, so no surprises anytime soon. I researched quickly about the mangment, Walter Johnsen seems like a good CEO changed ACU to a profitable business in 1995 when he first be came CEO. From the earning transcipt, seems like he is more focus on company value rather than focusing on numbers as well.

Net income position last 10 yrs, FCF positive 8/last 10 yrs. Balance sheet seems good. And the current price is good as well. I think it offers roughly MOS 50%.

Post edited 8:49 pm – December 18, 2009 by DrSues02

My first time doing a detailed writeup even though I have been following OSR and using the spreadsheets for quite some time.  Suggestions are welcomed and encouraged.

Valuing ACU – Acme United Corporation (Using 5-year OSV spreadsheet)

Acme United Corporation is a supplier of cutting, measuring and safety products to the school, home, office, hardware and industrial markets.  Been around since 1867!

A few comments:

Revenue has increased every year since 2002, even through the tough times of 2008.  2009 will be very close but they might squeak out another increase.  Looking through the 10-Q, the company lost a large order during Q3 which explains the lower sales during the TTM.  

Slight decrease in gross margin percentages but the margins have stayed relatively constant.  The company has taken steps to cut costs and improve margins (salary freezes, etc). 

Consistent FCF generation throughout for the past 10 years.  Debt to equity is a little higher than I would like @ 98%, but the company expects to re-negotiate its credit facility in early 2010.

One contingency to note is from their sale in Dec 2008 of their old factory.  Part of the terms of the sale was the requirement to remediate the property for any environmental contamination.  The company set aside $1.8 million for this work.  They have paid $311,000 so far.  The good news is that a newer environmental study reduced the project plan costs by $460k.  It looks like the entire cost will be paid off in the new plan by Q1 of 2010.

Company has announced several stock buyback programs to repurchase up to 249,335 shares.  They repurchased 75k in Q3 at an average price of $8.72.  The company also pays a small dividend.

Here are my valuations:

DCF: 15% discount rate, 8% growth rate – Share Value: $20.48, MOS: 57%

• I used 8% growth since it is the lowest 3 year FCF growth rate during this period.  Median growth of 22.3% results in a share value of $35.46. Even a 0 growth rate results in a DCF value of $15.92.  M

Graham: 12% growth, normal earnings of 1.0, Share Value: $17.71, MOS: 50%

EPV: 9% discount rate, normalized income of 6.98, Share Value: $21.16, MOS: 58%, Net Reproduction Cost is $15.47

• Still learning EPV so I didn't make any modifications to the numbers

Seems like a conservative estimate of $17-$21 for the company's value.  Stock currently trades around $8.90/share.

Appreciate the feedback.  Still working on clearly communicating my investment thesis.

DrSues02