Mcilvaine Insights

 

No. 207   August 9, 2022


 

        Briefs

        Niche Market Leadership for Higher Profits in the Valve Industry

 

Briefs

Reshoring AWE Imports: The continuation of Chinese harassment of Taiwan this week has analysts worrying that China was carrying out a dress rehearsal and that invasion is now a real threat. Many parts for AWE products are exported from China. Many AWE suppliers are now wondering whether reshoring will be necessary.

Recession: Surveys show half the AWE companies are expecting a recession. Shares of publicly held AWE companies are down about 20% this year. This offsets the rise last year.

Ukraine: Fighting around the largest nuclear power plant in Europe creates a catastrophic potential.

Inflation Reduction Act:  It will boost solar and electric vehicles but also communicates an urgency for reduction with carbon negative technologies. BECCS is the logical choice. Drax is looking for sites in the U.S.

Coal:  690 MW Meerum coal plant in Germany is being restarted. China began construction of 33,000 MW of new coal plants in 2021. (Utility E Alert - August 5)

Monitoring:  Ametek has made 80 acquisitions recently.  New acquisitions are indexed in the McIlvaine acquisition guide. (IIoT and Remote O&M Newsletter - July 2022)

 

Niche Market Leadership for Higher Profits in the Valve Industry

Niche market leadership is a proven route to higher profits in the high performance segment of the industrial valve industry.

Annual revenues for high performance valves are over $35 billion per year. These valves are purchased based on performance and not just price. The result is higher gross margin and EBITDA.

Much of the value is in lower total cost of ownership. This is the result of R&D which may have been expensed long ago.

Since the price advantage is not due to lower cost of production. EBITDA rather than EBIT is a better indicator of the success of higher performance valves. it reflects performance superiority rather than investment to lower manufacturing cost (the average valve company cost which in turn would be reflected by higher depreciation).

Valve companies average EBITDA of less than 20%  IDEX is a leader with 30%. Emerson EBITDA is 25%.

It has been shown that EBITDA and niche market leadership are correlated.

The largest valve company has less than 6% of the total valve market. But it has 10% of the power market in the Americas. It has 15% of the  power-Americas-severe service-control valve market.  This leadership disproportionately contributes to high EBITDA as shown in the following graph.

 

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The average valve company has only a fractional percent of the total high performance valve market. But in niches some of these companies are market leaders with 10% share. It is in these niches where 30% EBITDA is achievable.

The McIlvaine company forecasts the very narrow market niches on a custom basis. But it maintains millions of forecasts with the level of detail shown below for Emerson.

 

Total Revenue

$ billion

Emerson

Emerson

Category

 $ billion

Market

Share %

Total

70

3.6

5.1

Severe

10

1.2

12

Critical

21

1.8

9

Unique

4

0.25

6

General

35

0.35

1

Total

70

3.6

POG

20

1.76

9

Heavy

15

1.05

7

Life

12

0.36

3

Muni

10

0.3

3

Other

13

0.13

1

Total

70

3.6

Americas

19

1.8

9

EMEA

18

0.7

4

APAC

33

1.1

3

70

3.6

Isolation

52

2.4

5

Control

18

1.2

7

Total

70

3.6

The industry groupings are based on the following  segments.

 

cid:445ac9e2cb464a41a6fd782d5d08baee@192.168.168.53

 

Acquisitions which boost total EBITDA % rather than just EBITDA revenue should be pursued.  McIlvaine is continually updating an acquisition database along with market shares.

For more information on Industrial Valves: World Market click on:

http://home.mcilvainecompany.com/index.php/markets/water-and-flow/n028-industrial-valves-world-market

Bob McIlvaine can answer your questions at 847 226 2391 or rmcilvaine@mcilvainecompany.com

 

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