Chuck Akre (Trades, Portfolio) is the founder of Akre Capital Management LLC. He has been in the securities business since 1968, and continues to be the primary person responsible for his firm's investment advisory services and investment selection. He was named to Barron's "Top 100 Mutual Fund Managers" list from 2003-2006, one of only two small cap growth managers to make the list four consecutive years. Chuck Akre (Trades, Portfolio) employs a classic value approach in selecting companies for his portfolio. He likes to buy companies with strong business model demonstrating consistent earnings growth, high return on equity or high compound growth rate in book value per share. He also looks at the quality of the management.
Chuck Akre (Trades, Portfolio)'s portfolio turnover is remarkably low. His portfolio is also concentrated, with about 40 stocks, and his top ten holdings typically make up over 60% of assets. Roper Industries (ROP, Financial) is one of his top ten holdings. As of the last quarter, he was holding 1,146,390 shares of the company.
Roper Industries designs, manufactures and distributes medical and scientific imaging products and software, radio frequency (RF) products, services and application software, industrial technology products and energy systems and controls products and solutions. The Company’s operations are reported in four segments: Medical and Scientific Imaging, RF Technology, Industrial Technology and Energy Systems and Controls.
Roper posted a strong fourth quarter and full fiscal year 2014 results. The company achieved record performance in all key metrics: orders, revenues, net earnings, EBITDA and cash-flow. Revenue was up 9% for the year with organic revenue growth of 6%. The company's operating profit exceeded $1 billion for the first time. Its operating margins were at 28.2% and incremental operating profit leverage was 42%. The company's EBITDA exceeded $1.2 billion for the first time and its EBITDA margins were at 33.8%. Free cash flow was also impressive at 23% of revenues.
The company expanded its medical and software platforms with three acquisitions of Strategic Healthcare, Innovative Products and Food link. The company's gross debt at the end of last quarter stood at $2.2 billion or 1.8x its trailing EBITDA. Management believes there is further scope to increase the company's leverage and plans to continue with inorganic growth strategy particularly on medical and software side.
In 2015, the company is expected to post record performance despite the fears around macroeconomic scenario. Some investors seems to be worried that the company's business may be impacted because of recent oil price crash. Roper does cater to Oil and Gas end markets through its energy and industrial segments. However, unlike previous cycles, when it was a big portion of the overall company, it is now a very small portion. The company's upstream business represent ~5%, while downstream and midstream represent ~9% of its total revenues. The rest of the 86% of the company is its medical, RF, software and water end markets.
While the upstream end market is expected to be down ~20%, Roper's pump business is likely to decline less as it will benefit from the new technologies that it launched and broader categories it introduced in the second half of 2015. In the downstream and midstream business, the company is likely to see modest growth. While there are signs that Oil and Gas companies are delaying their projects and Capex plans, most of Roper's products don't go in capex driven activities. So, the concerns surrounding the slowdown in Oil and Gas industry impacting Roper's business is a bit overstated.
Roper has guided for an EPS of between $6.70 to $6.94 for the full year 2015. The company expects organic revenue growth to be around 3% to 5% and operating profit leverage on incremental revenues to be around 40%. According to sell side estimates, the company's EPS is expected to grow 6.5% in the current year and 8.6% next year. It is trading at a forward PE of 22.77x. Out of nine analysts covering the company four are positive and have buy ratings, while five have hold ratings. I like the company given its good growth prospects.
