Al Gore, Warren Buffett Score: "China's Woes Fuel Nalco's Growth" (NLC; BRK.B)

Other fans include Soros and Cohen of SAC, Ken Fisher and Jeremy Grantham.
A first rate catch from Barron's:
Demand is rising on the Mainland and elsewhere for Nalco's water-treatment technology. Why shareholders could be cleaning up.

ONE OF THE UGLIEST, most damaging consequences of China's hyper growth in the past two decades is severe pollution of its air and water. Major lakes and rivers have been filthied; many cities are suffering from a shortage of potable water, and manufacturing bottlenecks have occurred as dirty water corrodes and clogs boilers, filtration systems and industrial machinery. With its bulging population and sprawling deserts, China has relatively little freshwater per capita to start with, so that makes cleaning up what it does have even more crucial for the health of its people and economy.

For Nalco Holdings, that's great news. The Naperville, Ill., company controls 17% of the $20 billion global market for water-treatment and process-improvement chemicals, equipment and services, and is finding China an increasingly lucrative market. The company's customers in the U.S. and abroad are in industries such as aerospace, paper, chemicals, petroleum and mining.
Barron's last praised Nalco's prospects about a year ago (see "Nalco's Expanded Horizons," Sept. 14, 2009), citing the company's expansion in international markets, including Russia, India and, particularly, China. The stock (ticker: NLC) has rallied 44%, to around 26.50, since, but some analysts think it could rise another 50%.

Nalco has operated in China for more than a quarter- century, and the revenue it generates there has jumped by more than 25% a year in the past decade. Last year, China accounted for about $130 million, or 3.5%, of total revenue of $3.7 billion, according to Eric G. Melin, Nalco's executive vice president for Asia, based in Shanghai. This year, sales in China are on track to rise more than 30%, and management is targeting annual revenue of $500 million by 2015.
"It is a very profitable market," Melin says of China. "Our margins run slightly higher here than they do across the globe."

A Rising Tide

China now accounts for $130 million, or 3.5%, of Nalco's annual revenue. It could be chipping in $500 million by 2015.

Nalco at a Glance
Ticker		NLC
Recent Price*		$26.55
12-Month Change		27%
Revenue '11 E		$4.3 bil
EPS'11 E		$1.75
PE '11 E		15.2
*As of 10/21. E=Estimate.
Source: Thomson Reuters

A key move in expanding its stake in China came last May, when Nalco hired Ying Yeh, a leading Chinese businesswoman and former head of Eastman Kodak's (EK) Asian operations. Networking is critical in China, and Yeh, a Beijmg native, naturalized U.S. citizen and one-time head of the U.S. embassy's commercial-affairs department in Beijing, seems well-suited to the job. "Because Nalco has a lot of money invested in China, it's good to have someone on the ground who knows the landscape, is well- connected and can help the company build relationships," says David Rose, an analyst with Wedbush Securities.

Nalco's opportunities in China are immense, its prospects and business elsewhere also are burgeoning. In this year's first half, earnings per share more than doubled from the year-earlier period, to 73 cents a share, on a 15% gain in sales, to $2.04 billion. Consensus forecasts call for Nalco to earn $1.50 a share in 2010 and $1.75 in 2011, compared with 92 cents in 2009. Revenue is expected to rise 8% this year, to $4 billion, and 5% next year, to $4.2 billion. Nalco pays a 14-cent dividend, for a yield of 0.5%.

Given Nalco's dominant position in water treatment, annual free cash flow of roughly $150 million a year and operating margins of 17.6%, Wedbush's Rose rates it Outperform, with a 12-month price target of 32.

BRIAN DRAB, AN ANALYST at William Blair, thinks the stock could be worth even more. Shares are trading for about eight times his 2011 Ebitda (earnings before interest, taxes, depreciation and amortization) estimate of $800 million, compared with a multiple of 10 times Ebitda for peers such as Praxair (PX) and Ecolab (ECL). Based on his estimates of $4.6 billion in 2012 sales and $897 million in '12 Ebitda, Drab says the stock could command a price/earnings multiple of nine, implying a share price of 39.
"Nalco's share of the industrial-water-treatment, energy and paper markets in China is about 10% to 15%, leaving significant room for gains," he says....MORE

Also at Barron's this week "Blue-Chip Specials From the Buffett Menu".

We first posted on NLC in March '09's "Nalco: Buffett's bet on water (NLC)":

From BloggingStocks:

"Warren Buffett's Berkshire Hathaway revealed a new position in Nalco Holding (NYSE: NLC); it's my favorite pure play on water filtration," says Chris Mayer in Daily Wealth.
"With a $1.6 billion market cap, Nalco is a small-cap stock, but it's actually one of the world's largest water-treatment companies. Customers use Nalco's products and services to prevent corrosion, contamination, and the buildup of harmful deposits.
"Buffett picked up 8.7 million shares. That makes Berkshire the second-largest shareholder in the company, with a little more than 6% of the shares.It's easy to see what Buffett likes.
"Nalco generates a steady stream of free cash flow – $142 million in its fiscal year ended September 30. Today, the market cap is about $1.6 billion....MORE

Last I remember BRK was up to 9.15 million shares.
See also :

 "How Warren Buffett May Profit From the Gulf Oil Spill" (BRK.B; BRK.A; NLC)

Not some reinsurance exotica. Old-fashioned "Buy good companies at good prices".

Cannacord Adams: "The Earth Day Stocks to Watch" (NAL : TO; NLC; NCS; RBCN)


Al Gore's Generation Investment Management FORM 13F HOLDINGS REPORT-November 10, 2009 (DE; PCL; JCI; BLKB)

Al's got wood!
And implements!