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Author: stillwater9999 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 212919  
Subject: Nalco Date: 3/1/2009 10:13 AM
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In the latest filings we learned that Berkshire had taken a stake (8.7 million shares) in this chemical company. I have followed Nalco loosely for many years and have some familiarity with the company’s products, having worked in the chemical industry at one point. This purchase interests me since my general investing preference is for focused small caps. Some have commented that this may be a Lou Simpson idea rather than a WEB idea, but I would think WEB has endorsed it in any case.

Taking a quick look at the basics here, NLC has business in industrial and institutional service (would include basic water treatment) 45%, Energy related (includes surfactants used to enhance oil field recovery, hydrate inhibitors used in deep water applications etc.) 30%, paper 19%, other 6%. They claim to be the leaders in the Industrial Services (GE-Betz is a significant competitor) and Energy markets, and number 3 in the paper segment. So there would appear to be some nice competitive advantage there. Company has exposure to China, Middle east and other emerging markets. Overall 2009 revenues projected to be about $4.5 B, growing nicely from about $3B in 2004. P/E (trailing) about 10, P/CF trailing about 4.4. Net profit margin is only about 4% after rising from only 1.4% in 2005. That is lower than I like. Long term debt of $2.85 B is also pretty high for this size company.

The oil field related business has been the rising star (up 23% in latest Q, 18% organic growth for the year – see earnings announcement link below and quote from the cc)

http://biz.yahoo.com/pz/090203/158877.html

“We also continue to invest aggressively in Energy Services growth leading to an 18% organic growth. Steve Taylor's team closed 65% of all new CapEx business in oil field services and better than 50% in downstream with 75% achievements in our target Middle East market. We're also bringing some great new technology to market this year to help support ongoing growth in Energy Services.”

This would appear to be likely to take a hit in 2009 with oil field activity declining. From the cc management expects this segment to see continued growth in 2009 but at a lower pace,

http://seekingalpha.com/article/118496-nalco-holding-q4-2008...

(see discussion on p. 5)

Insiders control about 8% of the float. Dividend is about 1.2%

I have not taken any position here, but taking a look. Not a perfect investment but there is a fair amount to like here at the current price.

Anyone else looking at this? - sw
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