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Tuesday, October 22, 2013

Why ARCW Deserves A 3d Printing Multiple And Is Poised To Double Or Triple

ARC Group Worldwide Inc. (ARCW) is an under followed and under the radar Company. They are a leader in a unique manufacturing niche and like the 3d printing boom, they are experiencing rapid growth, profitability and cash flow from operations. It is my opinion, that the shares are greatly undervalued compared to other growing manufacturing specialty technology companies.

ARC, through its operating subsidiaries AFT, AFT-H, QMT, ARC Wireless LLC, and ARC Wireless Ltd., is a global diversified manufacturer, active in MIM, specialty hermetic seals, flanges and wireless equipment.

ARC's mission is to bring innovation to traditional manufacturing. ARC is focused on building its core manufacturing businesses in precision components, flanges, fittings and wireless equipment. The Company focuses on building these units through organic growth, as well as vertical and horizontal acquisitions. In addition to making acquisitions that are strategic to ARC, the Company evaluates new manufacturing niches that fit into its broader objectives, which are bringing manufacturing back to the US, bringing technology to traditional manufacturing, as well as optimally position the Company within the global manufacturing supply chain.

On October 4th, 2013, ARCW reported fourth quarter 2013 net income of $1.6 million and $3.0 million for fiscal year ending June 30, 2013. The fourth quarter and full year results are driven by improved performance in all of our manufacturing operations and higher sales revenue resulting from the reverse acquisition between ARC and Quadrant Metals Technologies (QMT) and the acquisition of Advanced Forming Technologies, Inc. (AFT) and AFT-Hungary Kft., (AFT-H). ARC also reported adjusted earnings per share (Adjusted EPS) of $0.30 for the fourth quarter 2013 and $0.85 for the fiscal year ending June 30, 2013.

For the fiscal year ending June 30, 2013, the Company's total sales were $68.5 million, growth of 125.3%, or $38.1 million, over $30.4 million in fiscal year 2012. Sales for the fourth quarter ending June 30, 2013 amounted to $19.5 million compared to $7.7 million in the prior year fourth quarter an increase of 153.7% or $11.8 million. Growth in the precision components segment of the Company's business has been driven by increased demand for components manufactured by the Company's three metal injection molding ("MIM") businesses. These three companies, FloMet LLC, AFT, and AFT-H are the pioneers and recognized technological leaders in the industry. MIM is a cost effective method of producing high volume precision metal components and is gaining increasing adoption throughout industries such as medical devices, automotive, consumer durables, defense and firearms. The MIM businesses have had a positive impact on the Company's sales and we anticipate sales to continue to increase as the market demand for components increases. The Company's continuous improvement focus and strategic investments in technologically advanced capital equipment, like robotics and automation, have allowed it to increase efficiencies and reduce costs while also significantly increasing available capacity for growing demand. The Company reported 27% gross margins for the fiscal year ending June 30, 2013 and 28% in the fourth quarter 2013.

Commenting on the recent MIM performance, Robert Marten, CEO of the QMT-MIM division stated, "We now unequivocally have the world leader in MIM and have integrated our three MIM factories into a world class, global MIM operation. We are focused on continuing to provide exceptional product quality and service to our customers, as well as further strengthening our position in the MIM industry by growing our existing operations, vertically integrating and opportunistically evaluating acquisitions."

"We are very pleased to now run the world's leader in MIM and look forward to continued growth in that division," said ARC Chairman and CEO Jason Young. "While we continue to build our MIM division, we are trying to build similar market dominance in our other manufacturing divisions, through organic growth, as well as acquisitions both horizontally and vertically. We are also big believers in US manufacturing, as well as bringing technology and innovation to traditional manufacturing. We have brought significant technology to our various businesses, and view the continued adoption of robotics, automation and 3D printing as key drivers to growth in manufacturing, particularly in the US."

ARCW is the leader in a unique manufacturing process that lowers costs. From their website it states, "For metal injection molded and powder injection molded components, delivered accurately and on time, look to the innovation and service provided by AFT. We have invested in the latest technology to provide cost-effective, efficient, and customized solutions to clients' tooling and quality metal injection component manufacturing needs. Our MIM process is an alternative to investment casting processes, offering a final product with finer detail and greater density, and usually a lower production cost."

The metal injection molded (MIM)_ and powder injected molded markets are both forecasted for big growth, verifying the ARCW forecasted comments.

Read the articles "MIM Surges Forward" and "SciPiVision's Market Study Finds Strong Growth For Powder Injection Molding" to learn more about the growth of these processes.

3D Printing Companies 3D Systems Corp. (DDD), Stratasys Ltd. (SSYS), and The ExOne Company (XONE) are also in a fast growing manufacturing industry that is a unique niche. ARCW mentions 3d printing in their last press release:

"We have brought significant technology to our various businesses, and view the continued adoption of robotics, automation and 3D printing as key drivers to growth in manufacturing, particularly in the US, said ARC Chairman and CEO Jason Young"

DDD has a P/E ratio of 43, SSYS has a P/E ratio of 46, and XONE has a P/E ratio of 112, all based on next fiscal years forecasts. ARCW reported $0.30 in their last quarter and said they anticipate sales to continue to increase. With a conservative extrapolation of last quarters EPS we get a full year $1.20 EPS for 2014 (even though the Company said they expected growth). Applying the 3d printing companies P/E ratio of 44, ARCW should be a $52.80 stock. Even with a traditional growth P/E of 20, ARCW should be a $24 stock. With only 5.7 million shares outstanding, a public float of only 1mm shares, and a Company stock buyback in place, I believe ARCW deserves to double or triple from the $10.10 closing price today based on their strong growth and leadership position in a rapidly growing important manufacturing process.

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