Description
Flow International Corporation (NNM:FLOW) is a small company specializing
in ultrahigh water pressure for cutting, cleaning, surface preparation,
and most recently - food safety applications. The company was founded by
an ex-Boeing engineer in the 1970's to develop water jet technology as a
private business and has grown to a public company of around 1000
employees. It is still located in Kent Washington. Ron Tarrant is CEO and
has held the position for over 10 years.
Numbers: FY ends in April. Market cap of approximately 155 M, trailing
12 month net income is 5.9 M on a TTM revenue base of 199 M. Shareholder
equity is 67.6 M. Diluted shares 14.79 M, with a float of less than 10 M.
Thinly traded with an average daily dollar volume of less than 0.5M. Very
quiet trading for several years. Current ratio better than 3:1. A little
heavy on the debt with a LTD/TC ratio of 54%.
3 lines of business here, water jet cutting, in which they are number one
in north american systems, isostatic presses, and their newest and most
promising line of business "fresher under pressure" which is food
purification. The isostatic presses are large individually assembled
systems where business tends to be lumpy. The past 9 months isostatic
has been slow but now there is a 20M backlog on new systems. Water jet
cutting is a good steady business that includes service and replacement
parts and water jet cutting continues to experience slow growth and new
applications. The food purification business, however, is the catalyst
here. They have patented a food purification system that utilizes high
pressure rather than chemicals or temperature. This system has been
recently adopted by Hormel, Perdue Farms and two other unnamed meat
processors, and is currently being tested by a juice manufacturer and a
pharmaceutical company.
The most recent conference call can still be found at http://www.vcall.com
Management has stated that they expect the food purification business to
double in revenue each year for the next several years and they are in
the process of acquiring more capital in order to develop that side of the
business. Their preference is debt rather than a new issue of equity.
FLOW is followed by 3 analysts and I noticed that Fraser Capital Management
is also following the company.
On the surface FLOW common doesn't appear cheap at 20 times expected net
income for FY2001, nor safe at 2 times tangible book value. However, although it
appears pricey on a cash flow basis, there is competitive advantage here
in all of the business lines as well as a catalyst for future growth.
Management seems confident in it's future prospects. They have managed
their balance sheet well for many years. The recent debt increases are
directly related to the late stage development of fresher under pressure
and it's deployment. The other 2 lines of business generate positive free
cash flow and possess some growth potential as well.
Catalyst
A new business line, "Fresher Under Pressure" which is growing rapidly and
has a lot of potential in the food and pharmaceutical industries. The
development of this business line requires more debt which is of course
a speculative factor, but results are already evident. Occasionally, FLOW
common can be purchased at $10/sh, which is a market cap of less than 150M.
It's an interesting business - worth a look in our humble opinion.