Northern Technologies International NTIC
January 27, 2015 - 9:40pm EST by
2015 2016
Price: 21.50 EPS 1.25 1.5
Shares Out. (in M): 5 P/E 17.2 14.3
Market Cap (in $M): 100 P/FCF 17.2 14.3
Net Debt (in $M): -7 EBIT 8 9
TEV ($): 94 TEV/EBIT 12.2 10.2

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  • Micro Cap
  • Illiquid
  • Packaging
  • Industrial Goods
  • Management Ownership
  • Potential Acquisition Target
  • No Debt
  • GARP


I really liked devo791's idea of Xpel Technologies (DAP-U CN), which is the leader in paint protection film (PPF) for cars. In a search for comparables, I came across NTIC, another microcap (thinly traded; less than 4,000 shares a day on average) that makes corrosion-resistant packaging film, etc. for industrial applications in sectors such as auto suppliers, oil & gas industry, etc.


Northern Technologies International (NTIC) is a leading provider of corrosion protection products for industrial applications. The company has three divisions: Zerust, Zerust Oil & Gas, and Natur-Tec (advanced bio-plastics). The three divisions each have solid growth potential:


Estimated Annual Total Market Potential

Estimated Market Growth Rate

NTIC F14 Sales

Growth Y/Y

Percentage of NTIC F14 Sales

Zerust (excluding Oil & Gas)

$520 million


$22.1 million



Zerust Oil & Gas

$25 Billion


$1.7 million




$1 Billion


$3.0 million



Source: company reports (December 2014)

In 1979, NTIC was the first company to patent polyolefin industrial corrosion packaging material. That first patent expired in 2000, but the company still has other patents. The company spent $4.4 million in F14 (August) and $3.8 million in F13 on R&D.  NTIC has a sales force and distributors. NTIC provides technical support and a methodology for complex corrosion management systems (generally leading to at least 10% total cost savings, depending on the application). The company provides leadership for several committees in NACE International, the association of corrosion engineers (; 33,000+ members).


First, Zerust products include proprietary corrosion/rust-resistant packaging film/bags and packaging paper, rust-preventing liquid additives and coatings, rust removers/cleaners, and rust-preventing vapor diffusers. The company has sold "Vapor Corrosion Inhibiting (VCI)" packaging for over 40 years. VCI packing typically lasts up to five years in an industrial setting. By preventing corrosion/rust, these various solutions can save significant labor costs (less maintenance costs, fewer repairs, reduced down time) as well as material costs and capex (longer equipment life and reliability). NTIC has over 2,000 customers worldwide. Customers include automotive parts, electronics, military (e.g. weapon protection bags), and waste water industries.

Second, Zerust Oil & Gas division makes proprietary corrosion-preventing solutions for the oil and gas industry. Key applications are packaging for the bottoms of oil storage tanks (for oil terminals and refineries) and flanges in offshore platforms. Zerust Oil & Gas division sales grew 71.1% in F14. This division enjoys higher gross margin, which has helped the company improve gross margin from 31.2% in F13 to 33.6% in F14.

Third, Natur-Tec are compostable (biobased and biodegradable) bio-plastic resin products. Film products include compostable garbage and carry out bags, agricultural mulch film, and films for food service and consumer packaging. Injection molding products include cutlery, pens, hangers and containers. Customers include Apple, Levi's, Oracle and Google. Natur-Tec sales grew 45.8% in F14.

Each of these three divisions is seeing growth, with a long run-way of growth potential going forward. The company reaches over 60 countries, through direct sales and JVs. Overall, 66% of sales are in the U.S.


The company also has formed 20 JVs internationally. Historically, NTIC has funded the JVs with cash from operations. NTIC receives equity in income of JV (almost always 30 or 50%) and fees for services provided to the JVs. Overall, JV operations contributed $14.1 million EBIT in F14 and $12.6 million EBIT in F13. Recently, the company ended its China JV (in which it had a 30% interest) and decided to sell direct in China. If NTIC can achieve the same profitability by going direct in China, that would be $5.5 million in EBIT (F14), up from $1.6 million (from its prior 30% interest in the JV).


CEO owns 14.5% of shares and directors own another 4.2% of shares.

Since 2003, sales have steadily grown at a 11% CAGR and EPS at an impressive 20% CAGR. In F14 (August), sales increased 19% and EPS increased 22% to $0.90. Recent guidance is for F15 (August) net sales of $32-34 million and EPS of $1.20 to $1.26.

The company has a strong balance sheet with no debt or LT liabilities. As of the recent quarter, cash is $2.6 million plus $4.0 million in available for sale securities. The German JV has 11 million euros on the balance sheet. Capex needs are relatively light, with $500k projected for F15 (roughly in-line with D&A). Recently, the company announced a $3 million share repurchase plan.

At $21.5, the stock trades at 23.9x F14 (August) EPS of $0.90 and 17.2x F15E (August) EPS of ~$1.25, a reasonable valuation today but cheap based on the growth outlook. With robust end markets and growth in each division and China, I believe this company can continue to grow EPS at 15-20% a year for the next five years, with the stock roughly appreciating at that annual level. Sure, not the explosive 70% y/y growth of Xpel Technologies, but solid nonetheless.


I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.


Continued growth in each of three divisions and growth from direct sales in China

Continued EPS growth (20% CAGR for last ten years)

Acquisition candidate

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