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basl1
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Don't know much about IR - but the 13f at Dec 31 says that he personally controls $11mln worth and through GEICO/GEC/NI etc, > $100mln. Positions that he's had more influence on tend to miss the GEC and GEICO disclosures (the Simpson controlled float, look at AXP).

I wouldn't put money on him having much influence on the IR position as of Dec 31.

Correct me if I'm wrong.

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Since Herbert Henkel took over the helm (about 9-10 years ago) --- he has been transitioning IR into a less cyclical and more focussed organization.  Take a look at what IR was 10 years ago --- and what it is today.  It's a very different company. 

 

* The main segments are Trane and the climate control business.  Combined they make up 2/3 of revenue.  Within the climate control segment they have developed a moat within grocery retail (think Wal-mart especially).  Lots of synergy potential with Trane.  Trane's main competitor is the slightly larger Carrier (owned by UTX).  Between the two they kind of dominate the heating/cooling market --- Carrier seems heavier weighted to heating whereas Trane to cooling.  Cooling would seem much more favourable to a growing emerging world than heating (same goes if you believe in global warming).  Energy efficiency comes into play -- some of the newer technology has quick pay offs in replacing old equipment.  High energy prices, higher inflation down the road along with potential goverment incentives could be a boost for the business.  In the mean time there is pent up demand.  If someone's air conditioner breaks down -- they might live without it for a year or two -- but eventually it will get fixed or replaced.

 

* The security business makes up about 15% of revenues.  This segment was growing up until Q3/08 --- despite the housing problems dating back well before that.  Again, new technology is unfolding -- digital technology is changing the way people unlock a door, get into an apartment, start their car, etc.

 

* What they call the Industrial segment makes up the rest (about 18%).  They make some very good tools -- and perhaps the best compressor technology.  New compressor technology is unfolding -- smaller .... more compact .... capable of more apps (particularly energy efficiency, air quality, etc) -- also synergies with Trane/climate control.    Club Car falls into this category also --- while it is only 3% of the company's total revenues --- a hidden fact is Club Car is the largest 'plug in' vehicle manufacturer in the world.  Club Car has started to branch out beyond the golf business but golf still is the predominant market -- they build/sell the best and have a 60%+ market share.  Where Club Car goes from here who knows -- but despite being only 3% of the company I still view it as a very valuable asset (sale, spin-off, merger, internal growth potential).

 

If you take a look across their broad base of businesses --- with the exception of maybe security there is a common theme:  Energy Efficiency (and to a lesser extent air quality).  But security still fits in well with the package -- when it comes to sales, parts and service -- there is a common focus with numerous synergies to exploit.

 

 

While the stock market has been beaten down -- I see IR being given an extra pounding --- thanks to:

1.  When they sold the road/equipment division --- they had a pile of cash --- the hope was that this would be returned to shareholders.  Didn't happen.

2.  Instead they bought Trane.  So there is a belief that they over-paid (While they may have got a better deal in today's market -- that's all in hindsight -- I think this will still be a good acquisition especially at today's discounted IR stock price.  Trane added 6% to recurring parts and service revenue -- they are now at 25%, goal is to get to 50%.).

3. The Bermuda (now Ireland) business registration (fact of the matter is that their main competitor UTX has even more of these registrations.  If President Obama succeeds -- both competitors will be in a similar position.  It's quite possible that some of the added tax base would be passed on to the customer over time  I don't see it as a big issue --- and at the present price I see a big enough safety margin even if next week the company had to turn to 100% American corporate taxation. 

4. Herb Henkel will be retiring in 2010 -- Mike Lamach will be taking over.  Lamach has been with the company since 2004.  Some analysts are of course nervous about this. 

 

I have a preference for companies in some sort of transition -- with very favourable odds of success. 10 years ago I don't know that one could have said that about IR -- but I really like the progress that has been made.  I view IR as an above average business striving to become an outstanding one.  In the mean time it trades at a healthy discount to what an average business trades for in the market. 

 

UCP / DD

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