Scenes from the AIM program table at O-Fest

Thanks to everyone who helped out at O-Fest:

Nico Delia

Sarah Hillegass

Kristiyan Trukov

Alex McBride

Casey McClelland

Sean Keenan

Austin Righeimer Jessica Hoerres



1st AIM Student Equity Update of the 2016 Fall by Andy Krueger. Balchem Corp (BCPC) "Record Quarter Just the Beginning for Balchem?"

Balchem Corporation (BCPC, $68.61) “Record Quarter Just the Beginning for Balchem?”

By: Andy Krueger, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article. 

Summary 

• Balchem Corporation (NASDAQ:BCPC) develops, produces, and sells specialty performance ingredients for the food, feed, and medical sterilization industries in the United States, China, Japan, Germany, United Kingdom, France, India, and Italy.

• VitaCholine, BCPC’s brand of choline supplements, received a favorable ruling from the FDA who now recognizes choline as an essential nutrient.

• Cost and sales synergy expectations for the integration of Albion International, Inc. remain on track.  Management is pleased with the response from BCPC’s customer base and Albion’s contribution to the business model.

• A significant fire in one of BCPC’s five chelated mineral plants is forcing the company to leverage their other 20 manufacturing plants as well as outside partners to ensure minimal disruption to the customer base.

• Despite the 7.8% decrease in Animal Nutrition & Health segment sales, management remains optimistic regarding the segment’s performance for the remainder of the year as dairy economics are showing signs of recovery.

• BCPC is hovering near the 52-week high of $70.91 and could be poised to break through after producing a record-setting quarter, despite battling significant headwinds in the oil and gas industry, as well as poor dairy economics. 

Key points: Traction for BCPC’s VitaCholine line of supplementation is increasing domestically and internationally.  In addition to the FDA recognizing choline as an essential nutrient, the European Food Safety Authority (EFSA) released results of a multinational study that showed choline intakes across Europe are too low.  As a result, management expects modest organic growth until mid-2018 when choline daily values will be required on labels and BCPC will see a large spike in revenue from VitaCholine. 

The acquisition of Albion International, Inc. for $111.5mm in cash on February 1, 2016, expands BCPC’s portfolio of nutrition products by adding over 100 patents of organic mineral compounds for both human and plant nutrition.  BCPC will increase its geographical footprint and define the combined company as a technological leader in spray-drying and ingredient delivery solutions.  BCPC already posted record-setting sales ($74.8mm) in the second quarter for the Human Nutrition & Health segment on the back of the Albion acquisition. 

The damage from the July 25 fire was significant, although no lives were lost in the incident.  BCPC is fully insured on the facility and owns business interruption insurance to cover any lost income; no material impact on the company’s bottom line is expected at this point. 

A decline in milk prices caused a decline in sales of AminoShure and NitroShure, however, the USDA has since increased the milk price forecast for the rest of 2016 and all of 2017 citing improving demand for dairy products both domestically and internationally.  As dairy economics continue to improve, BCPC expects their customers to increase purchases of various nutrients for their feed.

What has the stock done lately? 

Since the acquisition of Albion International in February, Balchem has seen share price increase 21%.  BCPC’s Q2 results saw a record high non-GAAP net earnings of $21.1mm ($0.66 per share).  BCPC is also generating record high amounts of cash, which will remain essential as the $288.7mm of long-term debt comes due.  BCPC is trading at 26.6x on a P/E valuation, which is above its historical average of 23.6x P/E, and the company will need to show investors a continued plan for growth if it hopes to convince them to hold on to their investments.  Any positive data from the FDA regarding the Phase III clinical trial for the Curemark drug that will be used in the treatment of autism would largely convince investors BCPC is worth the price. 

Past Year Performance: BCPC share price increased 18.74% over the past year; although, it has been far from a comfortable ride.  Investors saw the stock price close at $68.88 on December 4, 2015, only to find the stock trading at a 52-week low of $53.11 roughly one month later on January 20, 2016.  Investor sorrows were short-lived as the stock was back up to $65 just two weeks later following the announcement of the Albion acquisition.  Despite the large loss in share value during December and January, BCPC managed to put together an impressive performance over the last year.

Source: FactSet

My Takeaway 

Despite the macroeconomic headwinds facing BCPC, I believe the company can continue to post solid earnings as the impact from the headwinds lessens.  The news from the FDA and EFSA helped move the stock to near 52-week highs with the potential for more positive news coming from the Phase III trial for BCPC’s autism drug.  Although no timetable for the trial has been made public, patients must only take the drug for 90-days before the effects can be studied, and a few patients have already begun their 90-day trails.  Regardless of the fact BCPC is above its historical P/E average, I think it is worth holding the stock to wait for news regarding the autism trial and the large increase in revenues BCPC will see in mid-2018 when choline levels are required on labels, so long as the company continues to have solid cash generation to fund the interest payments on the outstanding debt.

The AIM program will participate in the annual Marquette O-Fest on Wednesday, August 31st

Marquette University AIM Program
Affiliated Finance Student Organizations

The AIM program supports the University’s mission in the search for truth, the discovery and sharing of knowledge, the fostering of personal and professional excellence, the promotion of a life of faith, and the development of leadership expressed in service to others. Belonging to organizations allows our students to go beyond the classroom and to better understand how their lives might be impacted by society trends, economics, and global issues. It’s called networking.

An important way for Marquette finance students to gain networking experience is to be a member of a student organization. The following organizations promote professional, career and social interests for students pursuing a finance major. We encourage our students to belong to a variety of groups which could include one or more of the following finance student organizations:

Financial Management Association (FMA)

Contact: Martha Wong (martha.wong@marquette.edu)

The Financial Management Association (FMA) is a global leader in developing and disseminating knowledge about the finance industry. Their mission is to broaden the common interests between academicians and practitioners and to provide opportunities for networking interactions between financial professionals and students.  Marquette’s FMA club regularly hosts speakers who discuss the topics of the day and showcase ethically oriented decision-makers in the finance industry. The group also organizes annual field trips to New York and Chicago, as well as arranging visits to local finance firms. A student membership in the FMA can be both professionally meaningful and a socially rewarding experiences for their members, chapter officers, and faculty advisors. The FMA Club is an ideal place to meet others who share the same interests and passions that you may not otherwise meet on campus.  By participating in the Marquette FMA Club, you gain the opportunity to:

• Broaden your knowledge in finance and other areas
• Sharpen your professional skills
• Gain recognition for outstanding achievements
• Meet new people and make new contacts and friends
• Gain leadership experience you can list on your resume
• Prepare yourself for the job world
• Be aware of other ideas and career opportunities
• Learn how to pursue your career path

Marquette Investment Club

Contact: Akash Vipani (akash.vipani@marquette.edu)

The student-run Investment Club seeks to further its members' knowledge of investment methods and strategies. The board and student members engage in intellectual discussions, make investment presentations, host guest speakers, and manage a real portfolio. Starting with seed capital of $25,000, the student-managed fund has grown over the years. The portfolio utilizes low-cost exchange traded funds (ETFs) enabling the students to gain experience investing in a wide variety of global financial instruments.  Members are also given the opportunity to complete bi-annually in an ETF national team competition.

Investment Banking / Private Equity (IB/PE) Club

Contact: Jeff Germanotta (jeffrey.germanotta@marquette.edu)

Marquette has recently created an Investment Banking / Private Equity Club. This group seeks to enrich the undergraduate experience by providing students with practical information, insights and resources to better manage their program of study. Professionals from the banking and private equity sector will help coach students on the process of obtain an internship and entry level positions – and offer long-term career advising.  Marquette students and alumni will manage the IB/PE Club holding topical seminars monthly during the school year.  Sample seminar topics include:

• Resume writing and interview preparation
• Identifying internship and job opportunities
• Maximizing internships
• Dressing for success
• Social and organizational skills
• Effective networking
• Effective business leadership and meeting skills

Real Estate Club of Marquette

The Real Estate Club of Marquette (RECM) is an active student group that brings in external speakers on a nearly weekly basis throughout the academic year to allow members and others hear about current trends in commercial real estate and network with industry professionals. In addition, the club organizes site visits to various regional properties and locations and sets up shadowing programs with professionals in the commercial real estate industry in the area.

The AIM Program's Investment Banking Course

AIM's Private Equity & Investment Banking track is entering its second year.  This semester's Investment Banking course, taught by Jeff Germanotta, will continue to emphasize experiential learning, including group case studies, current events presentations, and guest speakers.  

Jeff Germanotta

Mr. Jeff Germanotta teaches in the AIM program. He possesses more than 35 years of experience in investment banking, commercial banking and corporate planning, including extensive experience with commercial services, distribution, industrial and logistics business models.  His current activities include:

• Adjunct Instructor at Marquette University, teaching investment banking and private equity courses within the Applied Investment Management Program.
• Limited Partner and member of Supply Chain Equity Partner’s Advisory Board; a Florida based private equity firm established to invest in middle-market North American supply chain service businesses. 
• Limited Partner and Special Advisor to Greenbrair Equity Group LLC; a New York based private equity firm focused exclusively on investing in the global transportation, logistics and distribution industries.
• Opportunity International’s Board of Governors and Ambassador’s Council; the world’s largest not-for-profit microfinance organization headquartered in Illinois. 

Prior to his retirement, Mr. Germanotta was a Principal and Managing Director of William Blair & Company LLC, a Chicago-based global investment-banking firm. While at Blair, Mr. Germanotta was Co-Head of the Supply Chain Services practice within the Corporate Finance Department and Co-Group Head for the Equity Research Department’s Business Services practice.  As an investment banker, he assisted clients with the formulation and execution of numerous strategic initiatives, including capital raises and M&A activities.   As an equity analyst, Mr Germanotta was consistently recognized in the Financial Times/StarMine“World’s Top Analysts” rankings.

Mr. Germanotta holds a B.A. in Business Administration from the University of Wisconsin-Milwaukee and an M.B.A. from Marquette University. 

Talking about the course he said, "We're privileged to have numerous practitioners presenting real world examples of sell and buy-side M&A, leveraged finance, debt and equity offerings and more.   The class will explore shareholder wealth creation and key value drivers such as sources of sales growth, operating profit enhancement, the impact of income taxes, working capital and fixed capital investment,and the cost of capital.  We'll further employ a variety of valuations techniques , such as trading multiples, precedent transactions, discounted cash flow, leveraged buyout analysis, and accretion/dilution analysis to various investment scenarios.  Examples will include leverage buyouts, take-private transactions, dividend recaps, tender offers, and equity offerings."


Dr. David Krause, AIM program director said, "I am excited to have Mr. Germanotta as a part of the AIM instructional team. He has outstanding academic and institutional experience - and he has a passion for teaching. We will be adding a PE/IB club and brining many speakers to campus this semester. Thanks to the alumni and investment professionals for their support of Jeff and the AIM program's PE & IB track."

AIM Alumnus David Martin on CNBC Power Lunch: Small-Biz Owners vs. Trump's Economic Plan

David Martin

CNBC Power Lunch, Small Business Roundtable 

(Monday, August 8, 2016)

Small-Biz Owners vs. Trump's Economic Plan 

AIM Alumnus David Martin of HJ Martin & Son discussed the economy and their reactions to Trump's economic plan. David has been a frequent regular guest on CNBC over the past several years.

Click here to access the VIDEO