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Business Overview

Business Overview. Financial Analysis. Relative Valuation. WD-40 Company. Discounted Cash Flow. CFA Institute Research Challenge February 27, 2012. Investment Risks. BRYAN CHUCK | VIGNESH RAVIKUMAR| FLORENCE LIANG| JING LIANG. Business Overview. BUSINESS OVERVIEW. FINANCIAL ANALYSIS.

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Business Overview

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  1. Business Overview Financial Analysis Relative Valuation WD-40 Company Discounted Cash Flow CFA Institute Research Challenge February 27, 2012 Investment Risks BRYAN CHUCK | VIGNESH RAVIKUMAR| FLORENCE LIANG| JING LIANG

  2. Business Overview BUSINESS OVERVIEW FINANCIAL ANALYSIS DISCOUNTED CASH FLOW RELATIVE VALUATION INVESTMENT RISKS 2

  3. Business OVERVIEW Business Overview Industrial Professional Trades ProfessionalDoer/Household Source: Company Presentation BUSINESS OVERVIEW FINANCIAL ANALYSIS DISCOUNTED CASH FLOW RELATIVE VALUATION INVESTMENT RISKS 3

  4. Business Overview Revenue Breakdown by Product Segments Multi-purpose maintenance products Homecare and cleaning products Americas Europe Asia-Pacific Source: Capital IQ, Team Estimates BUSINESS OVERVIEW FINANCIAL ANALYSIS DISCOUNTED CASH FLOW RELATIVE VALUATION INVESTMENT RISKS 4

  5. Financial Analysis Turning over inventory 9.5x per year Inventory Turnover Source: Capital IQ BUSINESS OVERVIEW FINANCIAL ANALYSIS DISCOUNTED CASH FLOW RELATIVE VALUATION INVESTMENT RISKS 5

  6. Ample current ratio and low CCC Financial Analysis Source: Capital IQ BUSINESS OVERVIEW FINANCIAL ANALYSIS DISCOUNTED CASH FLOW RELATIVE VALUATION INVESTMENT RISKS 6

  7. Financial Analysis Financial flexibility due to healthy balance sheet Strong Cash Position Low Leverage Current Dividend Yield 2.7% Source: Capital IQ BUSINESS OVERVIEW FINANCIAL ANALYSIS DISCOUNTED CASH FLOW RELATIVE VALUATION INVESTMENT RISKS 7 7

  8. Financial Analysis Breakaway Margins Source: Capital IQ BUSINESS OVERVIEW FINANCIAL ANALYSIS DISCOUNTED CASH FLOW RELATIVE VALUATION INVESTMENT RISKS 8

  9. Profitability Financial Analysis ROA nearly 2x competitors, high ROE Source: Capital IQ BUSINESS OVERVIEW FINANCIAL ANALYSIS DISCOUNTED CASH FLOW RELATIVE VALUATION INVESTMENT RISKS 9

  10. Discounted Cash Flow Implied Price Per Share: $40.51 BUSINESS OVERVIEW FINANCIAL ANALYSIS DISCOUNTED CASH FLOW RELATIVE VALUATION INVESTMENT RISKS 10

  11. Discounted Cash Flow Americas Europe Asia-Pacific Revenue Projections by Geographic Regions Source: Capital IQ, Team Estimates BUSINESS OVERVIEW FINANCIAL ANALYSIS DISCOUNTED CASH FLOW RELATIVE VALUATION INVESTMENT RISKS 11

  12. Discounted Cash Flow Assumptions Discounted Cash Flow Implied terminal multiple inline with peer estimates. Company is susceptible to changes in WACC. BUSINESS OVERVIEW FINANCIAL ANALYSIS DISCOUNTED CASH FLOW RELATIVE VALUATION INVESTMENT RISKS 12

  13. Relative Valuation WD-40 trading at 18.8x average over last 5 years - inline with peers in 2011 Trailing P/E 2011 P/E Average 18.8x Source: Capital IQ, Zack’s, Thomson Reuters BUSINESS OVERVIEW FINANCIAL ANALYSIS DISCOUNTED CASH FLOW RELATIVE VALUATION INVESTMENT RISKS 13

  14. 2012E P/E Relative Valuation 2012E P/E returns to value inline with peer median estimates Source: Student Estimates, Thomson Reuters BUSINESS OVERVIEW FINANCIAL ANALYSIS DISCOUNTED CASH FLOW RELATIVE VALUATION INVESTMENT RISKS 14

  15. Relative Valuation EV/EBIT traded at 11.5x average. Favorable market led 2011 valuation higher Trailing EV/EBIT 2011 EV/EBIT Peer Median 11.9x Source: Capital IQ, Zack’s, Thomson Reuters BUSINESS OVERVIEW FINANCIAL ANALYSIS DISCOUNTED CASH FLOW RELATIVE VALUATION INVESTMENT RISKS 15

  16. 2012E EV/EBIT Relative Valuation 2012E EV/EBIT inline with historical average - Peer median 75th percentile Peer Median 10.5x Source: Student Estimates, Thomson Reuters BUSINESS OVERVIEW FINANCIAL ANALYSIS DISCOUNTED CASH FLOW RELATIVE VALUATION INVESTMENT RISKS 16

  17. Trades high relative to the peer median in 2011, but consistent with past Relative Valuation Trailing EV/EBITDA 2011 EV/EBITDA Source: Capital IQ, Zack’s, Thomson Reuters BUSINESS OVERVIEW FINANCIAL ANALYSIS DISCOUNTED CASH FLOW RELATIVE VALUATION INVESTMENT RISKS 17

  18. 2012E EV/EBITDA Relative Valuation Estimated EV/EBITDA in 75th percentile of peer median Source: Student Estimates, Thomson Reuters BUSINESS OVERVIEW FINANCIAL ANALYSIS DISCOUNTED CASH FLOW RELATIVE VALUATION INVESTMENT RISKS 18

  19. Multiples Based Valuation Relative Valuation BUSINESS OVERVIEW FINANCIAL ANALYSIS DISCOUNTED CASH FLOW RELATIVE VALUATION INVESTMENT RISKS 19

  20. Investment Risks BUSINESS OVERVIEW FINANCIAL ANALYSIS DISCOUNTED CASH FLOW RELATIVE VALUATION INVESTMENT RISKS 20

  21. Investment Risks • Intellectual Property Theft Risk Source: International Chamber of Commerce BUSINESS OVERVIEW FINANCIAL ANALYSIS DISCOUNTED CASH FLOW RELATIVE VALUATION INVESTMENT RISKS 21

  22. Investment Risks • RAW Material Prices Risk WDFC Margins σGM=1.5% Source: Company Report BUSINESS OVERVIEW FINANCIAL ANALYSIS DISCOUNTED CASH FLOW RELATIVE VALUATION INVESTMENT RISKS 22

  23. Investment Risks • FX Rate Risk Currencies WDFC Trades In Domestic 40% International 60% Source: Pacific Exchange BUSINESS OVERVIEW FINANCIAL ANALYSIS DISCOUNTED CASH FLOW RELATIVE VALUATION INVESTMENT RISKS 23

  24. Highlights

  25. Q&A Thank You

  26. Appendix Income Stmt Balance Sheet Common Size B/S Cash Flow Stmt Weighted Avg Price Dividend Aristocrat DCF Model Jet Kerosene Cost of Can DCF Assumptions

  27. Income Statement Home

  28. Balance Sheet Home

  29. Common Size B/S Home

  30. Cash Flow Statement Home

  31. Appendix Home Discounted Cash Flow Assumptions

  32. Dividend Aristocrats Index Home Defensive Play WD-40 and the Dividend Aristocrat Index has outperformed the S&P 500

  33. Weighted Average Price Home

  34. Appendix Home Discounted Cash Flow Model

  35. Appendix Home Cost of Equity

  36. Appendix Home Cost Breakdown

  37. Appendix Home 5 Year Jet Kerosene Prices Impact on Gross Margin Source: Cap IQ, Team estimates

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