Comments on: K-Tron (KTII) Business Valuation

By: Jae Jun

Jae Jun — Thu, 31 Jul 2008 04:11:17 +0000

An article on Forbes about KTII that is pretty much in line with what I had in mind pluss more background. Great information here.
http://www.forbes.com/free_forbes/2007/1029/102.html

By: Jae Jun

Jae Jun — Mon, 02 Jun 2008 08:59:56 +0000

Direct competitors with K-Tron.
1. Badger Meter
2. Heat and Control
3. Key Technology
Competition comparisons here.

By: Jae Jun

Jae Jun — Mon, 02 Jun 2008 01:01:23 +0000

Hey Enoch,
I wasn’t trying to defend myself or anything. In actual fact, your questions made me realise that I didn’t completely think everything through. I should just append what I wrote into the post haha.
I need questions like yours so that I dont get stuck in a rut.
High growth rates aren’t really a thing with me as well. But I believe this is a good company with a moat wide enough to yield enough capital gains over many years. Currently, it may not be a cheap stock but I’m looking forward to the long haul on this one.
I’m checking out your post now

By: Enoch Ko

Enoch Ko — Sun, 01 Jun 2008 20:34:57 +0000

BTW, what time did you post to your blog? Could your post have caused the “pop” towards the close of trading on May 29th?

By: Enoch Ko

Enoch Ko — Sun, 01 Jun 2008 20:30:45 +0000

Hi Jae Jun,
You’ve done quite a job analyzing K-Tron. I don’t mean to discourage or discredit your analysis. It’s just that I’m paranoid about forecasting high growth rates.
Anyway, your post inspired me to write a post on thinking about growth. I’ve got plenty more questions for you there, so be sure to check it out!
Cheers,
Enoch

By: Jae Jun

Jae Jun — Sun, 01 Jun 2008 06:17:48 +0000

Hi Enoch,
Thanks for your questions. It really got me thinking and I had to do much more research. So here is what I’ve gathered. Please correct me if I am wrong.
After reading Metso’s form 20F, they are more of a “product-oriented” company and looking to become a “service-oriented” company. K-Tron, with its smaller size has always been focused on service as part of their main business.
Also, Metso is a company that deals with a lot of full scope systems. By that I mean, they supply everything from A-Z for a customer. If a new site with tons of minerals have been found, Metso will provide all the equipment for on site crushing, transporting etc. K-Tron on the other hand, helps by providing more efficient, less overhead (smaller,functional) equipment that can replace big overly bulky and inefficient equipment in a system such as Metso’s. K-Tron’s equipment aren’t normally used in quarries but in factories, plants and mills where materials are ground to a pulp and made ready for commercial shipment.
By helping companies increase efficiency and thus helping them make money and recognizing that the “after business” i.e. servicing is just as important, K-Tron market niche is quite large indeed. Why? Their recent expansion into China and hopefully into emerging countries, where industrial growth is a requirement will definietly provide plenty of growth opportunities.
Onto Afag.
What I like about K-Tron is that they aren’t focused on just one line of business. They exercise their strategy to expand into related businesses. This can be seen by their vast product lines of systems including linear feeding systems as well as vacuum systems, liquid process control and loss in weight feeders. Afag on the other hand seems to deal with dry bulk material only such as tiny springs for watches, mobile phone volume keys, lids, covers, fuses and so on. Notice how they don’t have applications for things such as precise measurement of pills, grains, liquids etc. So it seems like Afag is in the same industry but contrasting applications. Afag also seems to emphasise business in the sales of parts and components.
Im no fortune teller myself and I can’t predict the growth but I do see that growth in other countries in the US provide excellent opportunity for K-Tron. 36% of their sales came outside the U.S. and I wouldn’t be surprised to see that number grow further.
The other competitors that I found on Google, were very small and even more specialised companies. They all seem to be private companies as well but I’ll have to continue monitoring K-Tron and try to find more information. Ahh.. the hassles of a small investor…
And out of curiosity, I did a comparison between Metso and K-Tron from 2000 onwards. You can see it here. Note the numbers are overwhelmingly in K-Tron’s favour. Metso just seems to be hoarding cash and not using it effectively for some reason..
Thanks for your questions. Made me rethink a lot of things.

By: Enoch Ko

Enoch Ko — Sun, 01 Jun 2008 02:59:35 +0000

Here comes the devil’s advocate…
Who are the competitors in K-Tron’s “niches”? How big is the market for these niches? Can they grow at the present rate without hitting some sort of “limit”?
There are some strong competitors producing similar products, such as Afag (http://www.afag.com/en.html) in pneumonic handling and feeding and Metso Minerals (http://www.metsominerals.com/) in crushers. What will keep them from entering K-Tron’s niches, given their large resources? As K-Tron grows to the limits of its niches, how can it enter into other areas and compete with these guys?
Industrials like K-Tron are interesting, but I’m not great at forecasting growth… especially whether they will continue to the same growth prospects in 5-10 years and warrant a similarly high P/E.