CFA Institute Research ChallengeCanisius College, Buffalo, NY

University at BuffaloBuffalo, NY

Brandon PritchardVaishnavi KulkarniSyed Daniyal Adil

Early Salim Ke Guo

Executive Summary

Highlights• #1 manufacturer of hoists, tire shredders, cranes,

rigging tools and digital power control systems in the US

• Headquartered in Getzville• Hoists make up 58.9% of revenue• Investment in R&D and new acquisitions

(Magnetech in 2015)• Strong management and independent board

Market ProfileClosing price (02/15/2017) $27.14 Market Cap $549.52M52 week range $13.19 - $29.23Avg. Volume 138,925Target Price $25.73 Beta (5 year trailing) 1.31Dividend Yield 0.97%P/E Ratio (TTM) 28.27EPS (TTM) 0.98

Geographical sales distribution

Corporate Governance

• Structure of Board of Directors

• Compensation of Executives

• Rights of Shareholders

Industry Overview

Economic indicators that affect the Industrial Sector as a whole:

• GDP growth

• Capacity utilization

• Industrial production

Factors influencing the growth in material handling industry

• Productivity

• Safety

• Modernization and upgrade of existing equipment

• Conversion to wireless applications

Competitive Positioning • Fragmented market leads to

competition.• High barriers to entry in the overseas

market.• Consolidation of channel-partners

Suppliers and buyers

• US Market leader

• Diverse line of products• Differentiation from competition

• Market products directly to end users through 30 independent wholly owned brands

• Abell-Howe (jib cranes), CES (cranes), PFAFF (Germany; rail systems, industry solutions), Yale Germany (Industrial components)

Product Category U.S. Market Share

U.S. Market Position

Hoist, Trolleys and Components (1)

47.5% #1

AC and DC Material Handling Drives (5)

57.5% #1

Screw Jacks (2) 37.5% #1

Tire Shredders (3) 52.5% #1

Elevator DC Drives (5)

67.5% #1

Jib Cranes (4) 27.5% #1

Financial Analysis: Profitability ● Revenue increases year

to year● Net Income decreased

in 2016

Profitability Ratios 2015 2016 2017E 2018 E 2019 EGross Profit Margin 31.33% 31.36% 30.64% 30.64% 30.64%Net Profit Margin 4.69% 3.28% 4.71% 4.71% 4.71%Return on Assets 4.80% 2.53% 3.40% 3.18% 2.98%Return on Equity 10.12% 6.84% 8.68% 8.12% 7.60%Operating Profit Margin 6.60% 8.82% 7.56% 7.56% 7.56%

2014 2015 2016 2017e 2018e 2019e $-

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

Revenue, COGS, and Gross Profit

Revenue Cost of products sold Gross Profit

2014 2015 2016 2017e 2018e 2019e $-

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

Net Income and Total Equity

Total Shareholder Equity Net Income

Financial Analysis: Debt• Incurred debt from acquisitions• Higher leverage• Cash and Cash Equivalents small

percentage of net debt

2014 2015 2016 2017e 2018e 2019e $-

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

Total Debt, Net Debt, and Cash & Cash Equi-lvalents

Total Debt Net DebtCash and Cash Equilvalents

2014 2015 2016 2017e 2018e 2019e $-

$50,000

$100,000

$150,000

$200,000

$250,000

Short Term and Long Term Debt

Long-Term Debt Short-Term Debt

Financial Analysis: Quality of Earnings

● Cash Realization increased greatly● Asset Replacement Ratio decreasing● EPS dropped

2014 2015 2016 2017e 2018e 2019e $-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

Net Income and EPS

Net Income Earnings per Share

Quality of Earnings 2015 2016 2017E 2018 E 2019 EAsset Replacement Ratio 1.18x 1.08x 0.97x 0.91x 0.85xCash Realization Ratio 1.41x 2.69x 1.61x 1.61x 1.61xEarnings per Share $1.36 $0.98 $1.41 $1.42 $1.43

Valuation of CMCO

Discounted cash flowRelative valuationMonte Carlo simulation

Columbus McKinnon Corporation – Price Target

Discounted cash flow Relative valuation

55% 45%

Assumptions of discounted cash flow

• Revenue growth: average growth rate of 3.1%.• Gross margin is maintained at 30%.• Operating expenses to revenue is maintained at 20%.• Depreciation to revenue is maintained at 2%.• Capital expenditure to revenue is maintained at an average of

2.6%.• Working capital to revenue is maintained at an average of 17%.• Terminal growth rate is assumed to be 2%.

Weighted average cost of capital

Weighted average cost of capital (WACC)Cost of equity 10%Cost of debt (pre-tax) 5%Tax rate 30%After tax cost of debt 3%Market value of equity 547,019,200 Market value of debt 318,100,000 Value of firm 865,119,200 E/V 63%D/V 37%WACC 7%

Cost of equityRisk-free rate 3%Equity risk premium 5.48%Beta* 1.31Cost of equity 10%*five-year trailing

Cost of debtPre-tax cost of debt 4.54%Tax rate 30%After-tax cost of debt 3%

Assumptions of market model

Company Name TEV/LTM EBITDA

Actuant Corporation (NYSE:ATU) 14.5 Chart Industries, Inc. (NasdaqGS:GTLS) 10.4 Empire Industries Ltd. (TSXV:EIL) 7.34 Hillenbrand, Inc. (NYSE:HI) 11.1 Linamar Corporation (TSX:LNR) 5.04 Manitex International, Inc. (NasdaqCM:MNTX) 30.4

Paragon Technologies, Inc. (OTCPK:PGNT) 2.28 Regal Beloit Corporation (NYSE:RBC) 9.41 Terex Corporation (NYSE:TEX) 13.0 Average 11.5 Source: S&P Capital IQ

Comparable companies valuation

USD millions Low High

EV/LTM EBITDA 11.00 12.00

LTM EBITDA 68.47 68.47

Enterprise value 752.97 821.45

Debt (317.79)

(317.79)

Cash 45.71 45.71

Equity value 480.89 549.36

Shares outstanding 20.23 20.23

Value per share 23.77 27.16

Source: Capital IQ

Sensitivity analysis on sales growth rate using monte carlo simulation

Valuation of CMCO

Valuation approach Low High Weights

Discounted cash flow 25.25 26.63 55%

Relative valuation 23.77 27.16 45%

Price target 24.59 26.87  

Total Revenue 1 Yr Growth % (USD)

2013 2014 2015 2016

Industrial Machinery (3.6%) (2.0%) (2.5%) (2.4%)CMCO 0.9% (2.3%) (0.6%) 3.0%

Adverse changes in economic conditions

General decreasein product demand

The abilityto obtain financingSource: Capital IQ

Currency Exchange Loss Mitigation• Transaction currency denominated in U.S.

Dollar• Derivatives

Source: Capital IQ

customer service and support product availabilityperformancefunctionality brand reputation reliability and price

Competition Risk

Source: Capital IQ

SummaryForward looking

• Further Acquisitions

• New development of products

• Growth in foreign market

• Strong US market share

Concerns

• Strong competition

• Cyclical business cycle

• Maturing company

• FX risk

• Interest rate risk

• Political risk

• Acquisition risk

Recommendation

Current price (02/15/2017): $27.14

Target price: $25.73

Sell

Questions?

Income statement  2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E

Revenue 591.95 597.26 583.29 579.64 597.10 618.00 639.63 660.74 680.56 698.94 717.81

Cost of Sales 434.23 423.03 402.24 396.86 410.22 432.60 447.74 462.52 476.39 489.26 502.47

Gross profit 157.72 174.23 181.05 182.78 186.88 185.40 191.89 198.22 204.17 209.68 215.34

S G & A 111.54 117.88 123.06 124.69 125.62 123.60 127.93 132.15 136.11 139.79 143.56

Depreciation 9.61 9.64 10.47 10.78 13.42 12.36 12.79 13.21 13.61 13.98 14.36

Operating income 44.11 54.37 56.01 55.82 48.24 55.00 57.57 56.82 59.89 59.41 61.01

EBITDA 53.72 64.01 66.47 66.61 61.66 67.36 70.36 70.04 73.50 73.39 75.37

Tax 28% 28% 28% 28% 28% 28% 28% 28% 28% 28% 28%

Revenue growth   1% -2% -1% 3% 3.5% 3.5% 3.3% 3.0% 2.7% 2.7%

EBITDA growth 19% 4% 0% -7% 9% 4% 0% 5% 0% 3%

Gross margin 27% 29% 31% 32% 31% 30% 30% 30% 30% 30% 30%

Operating margin 7.5% 9.1% 9.6% 9.6% 8.1% 8.9% 9.0% 8.6% 8.8% 8.5% 8.5%

SG&A/Revenue 19% 20% 21% 22% 21% 20% 20% 20% 20% 20% 20%

Depreciation/Revenue 1.6% 1.6% 1.8% 1.9% 2.2% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

Balance sheet-working capital and net debt/cash

Working capital    2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E

Revenue 591.95 597.26 583.29 579.64 597.10 618.00 639.63 660.74 680.56 698.94 717.81 WC/Sales 17% 18% 21% 20% 15% 18% 18% 17.5% 16% 16% 16%

Change in working capital     4.84 16.87 (10.94)

(25.40) 22.63 3.89 0.50

(6.74) 2.94 3.02

Net debt As on Sept 2016

Long-Term Debt 197.19 Capital LeasesPension & Other Post-Retire. Benefits -

Total Cash & ST Investments (45.71)

Net debt/(cash) 151.49 Source: S&P Capital IQ

Cash flow statement-capital expenditure

Capital expenditure

  2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E

Capital expenditure 13.80

14.90

20.80

17.20

22.30

15.45

15.99

17.18

17.69

19.57

20.10

Revenue 591.95

597.26

583.29

579.64

597.10

618.00

639.63

660.74

680.56

698.94

717.81

Capital expenditure/revenue 2.3% 2.5% 3.6% 3.0% 3.7% 2.5% 2.5% 2.6% 2.6% 2.8% 2.8%

Discounted cash flow  2017E 2018E 2019E 2020E 2021E 2022E EBITDA 67.36 70.36 70.04 73.50 73.39 75.37

Depreciation 12.36 12.79 13.21 13.61 13.98 14.36

Tax 28% 28% 28% 28% 28% 28% Change in working capital 22.63 3.89 0.50 (6.74) 2.94 3.02

Capital expenditure 15.45 15.99 17.18 17.69 19.57 20.10

Free cash flow to firm 13.88 34.36 36.45 45.78 34.24 35.17

PV 13.88 32.11 31.84 37.37 26.12 25.07

Terminal value 717.43

Present value of TV           511.52

  2017E 2018E 2019E 2020E 2021E 2022E

Free cash flow to firm 13.88 34.36 36.45 45.78 34.24 35.17

Terminal value 717.43

Present value of FCFF (low) 13.88 31.96 31.54 36.85 25.64 24.50

Present value of TV (low) 499.73

Present value of FCFF (high) 13.88 32.26 32.14 37.90 26.62 25.67

Present value of TV (high) 523.64

Weighted average cost of capital-Cost of debtCost of DebtInput in USD millionsOperating income 12.6Interest expense 2.5Coverage ratio 5.04

Rating based on coverage ratio* B1

Default spread** 1.75%Risk-free rate as of Dec 31st Treasury 20 yr 2.79%

Pre-tax cost of debt 4.54%Tax rate 30%After-tax cost of debt 3%*Professor Aswath Damodaran, New York University

**Professor Aswath Damodaran, New York University

Market value of debt in USD millionsLong term liability 197.2

Capital lease 0.3

Other non current liability 120.6market value of debt 318.1

Comparable companiesCompany Name Business Description

Total Enterprise

ValueLTM EBITDA TEV/LTM

EBITDAActuant Corporation (NYSE:ATU) Actuant Corporation designs, manufactures, and distributes a range of industrial products and

systems worldwide. It operates through three segments: Industrial, Energy, and Engineered Solutions.

1,984.4 136.5 14.5

Chart Industries, Inc. (NasdaqGS:GTLS) Chart Industries, Inc. manufactures and sells engineered equipment for the industrial gas, energy, and biomedical industries worldwide. The company operates in three segments: Energy & Chemicals (E&C), Distribution & Storage (D&S), and BioMedical.

1,140.6 109.4 10.4

Empire Industries Ltd. (TSXV:EIL) Empire Industries Ltd. designs, fabricates, manufactures, erects, and sells proprietary engineered products worldwide. Its Media-based Attractions segment designs and manufactures complex ride systems, telescopes, and custom machinery and equipment.

33.0 4.71 7.34

Hillenbrand, Inc. (NYSE:HI) Hillenbrand, Inc. operates as a diversified industrial company worldwide. The company operates through two segments, Process Equipment Group and Batesville. The Process Equipment Group segment designs, engineers, manufactures, markets, and services process and material handling equipment and systems for various industries, including plastics, processed food, chemicals, fertilizers, industrial minerals, mining, energy, wastewater treatment, and forest products.

3,009.1 269.9 11.1

Linamar Corporation (TSX:LNR) Linamar Corporation manufactures and sells precision metallic components and aerial work platforms in Canada, North and South America, the European Union, and the Asia Pacific. It operates through two segments, Powertrain/Driveline and Industrial.

3,867.6 777.5 5.04

Manitex International, Inc. (NasdaqCM:MNTX) Manitex International, Inc. provides engineered lifting and loading products worldwide. The company operates through Lifting Equipment, ASV, and Equipment Distribution segments.

304.7 15.9 30.4

Paragon Technologies, Inc. (OTCPK:PGNT) Paragon Technologies, Inc., through its subsidiary, SI Systems, LLC, provides various material handling systems, technologies, products, and services for material flow applications in North America.

1.05 0.462 2.28

Regal Beloit Corporation (NYSE:RBC) Regal Beloit Corporation, together with its subsidiaries, designs, manufactures, and sells electric motors, electrical motion controls, and power generation and transmission products in the United States and internationally.

4,498.1 478.1 9.41

Terex Corporation (NYSE:TEX) Terex Corporation operates as a lifting and material handling solutions company. Its Aerial Work Platforms segment designs, manufactures, services, and markets aerial work platform equipment, telehandlers, and light towers, as well as related components and replacement parts under the Terex and Genie names.

4,893.4 376.9 13.0

Average       11.5 Source: S&P CapitalIQ