Fls Week 3 States Of Industries


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Fls Week 3 States Of Industries

  1. 1. Flowserve Corporation ( FLS ) Industrials Group Andrew Yoon
  2. 2. Price Update for Past Week Price Update Current Price: $87.89 When I started looking at FLS, was priced at $73.89 Has stock already captured much of its upside?
  3. 3. Recap from last time: Bookings by Industry <ul><li>Oil and Gas 39% </li></ul><ul><li>Chemical 17% </li></ul><ul><li>Power Generation 15% </li></ul><ul><li>Water 6% </li></ul><ul><li>General Industries* 23% </li></ul><ul><li>General industries includes the following: mining and ore processing, pharmaceuticals, pulp, paper, food and beverage, and other small enterprises. </li></ul><ul><li>N-Stamp Certification (Nuclear Quality Assurance Level 1): Prerequisite to serve customers in the nuclear power industry. </li></ul><ul><li>R&D: $34m (2008) – 0.7%, $29.1m (2007) – 0.7%, $17.8m (2006) – 0.5% </li></ul>Revenue Breakdown
  4. 4. Oil and Gas (39%) Industry Trends <ul><li>Predicted that world population will rise to 8 billion in 2030, energy consumption raised by half. Expect that fossil fuels will continue to provide a very large proportion of that energy. </li></ul><ul><li>“ Easy to reach” oil is being exhausted: </li></ul><ul><ul><li>March 2008: Transcanada Pipelines (TRP) announces that it will build a large “bullet” pipeline to quickly move oil. </li></ul></ul><ul><ul><li>Canadian National Energy Board announces Canadian Oil Pipeline reaching maximum capacity, needs new faster pumping. </li></ul></ul><ul><li>As oil prices increase, companies can drill in more isolated areas and still turn a profit – using more extensive pipelines and pumping systems to get this oil (part of the reason FLS did so well in 2007-2008). </li></ul><ul><li>Energy Information Administration predicts oil prices by 2030 between $120-$130/barrel (currently around $60/barrel). Production is not projected to keep pace with the drastically increased demand. </li></ul>Oil and Gas Industry
  5. 5. Oil and Gas Deals <ul><li>10-year strategic agreement with Saudi Aramco (world’s largest oil company) to provide all products and services for use in their facilities. </li></ul><ul><li>Finalized agreement with China Petroleum and Chemical Corporation (Sinopec), now a preferred vendor for them. Sinopec is one of the largest petroleum companies in China, and is ranked 16 th in Fortune Global 500. </li></ul><ul><li>Supply pumps to Abu Dhabi Crude Oil Pipeline Project, estimated value of between $85-90 million. </li></ul><ul><li>Signed agreement with Petrobras, world’s 7 th largest oil company, to provide seals and services for one of the largest refineries in Brazil. </li></ul><ul><li>Currently developing new technologies for complex recovery such as deep water and oil sands. </li></ul>Oil and Gas Industry
  6. 6. Chemical (17%) Industry <ul><li>General industry trend difficult to predict – fluctuates with business cycles. Company will continue to leverage its presence in developing countries. </li></ul><ul><li>FLS is most active in: manufacturing of organic and inorganic chemicals, pharmaceutical and specialty products such as soaps, cleaners, etc. </li></ul><ul><li>Focus on developing advanced self diagnostic parts: IPS Tempo, ValveSight solution – these parts monitor operational behavior, discover problems and sometimes fix them automatically. “Maximizes operational uptime”. </li></ul>Chemical Industry
  7. 7. Power Generation (15%) Industry Trends <ul><li>China is looking toward using more nuclear power for its energy needs. The country currently has nine plants (2.3% of total power output in China), and plans to build 30 to 35 nuclear reactors by 2020 (6 of these have begun production as of Q4 2008). </li></ul><ul><li>Q4 2008 allocations: RMB 2 billion to improve rural power grid, RMB 2 billion to improve urban power grid, RMB 800 million for manufacturing of nuclear-power and wind-power terminals. </li></ul><ul><li>Expected to see increased power demands in growing countries like China and India, as well as expanded output in developed countries. </li></ul><ul><li>Electrical power output in US expected to increase from current 3852 to 4670 in 2030 – this requires significant plant upgrades and perhaps the construction of additional plants. </li></ul><ul><li>Alternative energies gaining popularity, wind and solar energy have been increasing output over the past year (wind up by 34.8%, solar by 2%). </li></ul>Power Generation Industry
  8. 8. Power Generation (15%) Deals <ul><li>China: supply valves for two nuclear power plants, and pumps for two other nuclear power plants. </li></ul><ul><li>Aftermarket support for 30 different upgrade projects in North America. </li></ul><ul><li>Significant amount of orders from areas all over the world (Angola, Algeria, Australia, and Chile). </li></ul><ul><li>Perspective on industry is bullish – opportunities are in new plant construction, upgrades, maintenance, leveraging the N-stamp advantage. </li></ul>Power Generation Industry
  9. 9. Water (6%) Industry Trends <ul><li>Increased demand (population up) and reduced supply of water: 99% of world’s freshwater is not readily accessible. </li></ul><ul><li>Water consumption has doubled every 20 years, will get more difficult to find over time, will need more complex systems and pumps. </li></ul><ul><li>Goldman Sachs: by 2020, US will need one trillion dollars in water treatment. </li></ul><ul><li>Limited options: Even with 5-fold increase in capacity by 2050, desalination will only account for 1% of global water supply. </li></ul><ul><li>California’s current water crisis will cost taxpayers US $1.6 billion per year by 2020. </li></ul><ul><li>Australia’s overhaul of its water-supply (due to 2007 drought) will cost an estimated US $10 billion. </li></ul><ul><li>China plans to channel billions of cubic meters of water from Yangtze River. </li></ul><ul><li>Libya needs to pump 730 million cubic meters of water from underneath the Sahara – costs US $25 billion a year. </li></ul>Water Industry
  10. 10. Water (6%) Industry Deals <ul><li>Expectation that investment in desalination industry will increase dramatically in the coming years: </li></ul><ul><ul><li>Designed new plug especially for desalination industry. Allows for quick and easy repair without removal of the valve from production line, or the need for special equipment or specially-trained technicians. </li></ul></ul><ul><ul><li>Acquisition of Calder AG, desalination energy-recovery system company. </li></ul></ul><ul><li>Bullish on industry: company projections that $22 billion will be spent in water infrastructure over next 25 years. Growth in demand for water and need to transport water over long distances will continue to create opportunities. </li></ul>Water Industry