Recent Spin-Off Neenah Paper Showing Structured Growth

Includes: CSD, NP
by: Andrew Corn

Alpharetta, Georgia based Neenah Paper (NYSE:NP), is an interesting constituent in the Clear Spin-Off Index, which is invest-able through the Claymore Clear Spin-Off ETF, symbol (NYSEARCA:CSD). The company engages in the production of customized and branded paper as well as pulp products primarily in North America and Europe. NP was originally spun-off on November 30, 2004 from Kimberly-Clark Corporation (KMD).

NP is segmented into three businesses: Fine Paper, Technical Products, and Pulp. The Fine Paper branch manufactures writing, text, cover, and specialty papers used in corporate annual reports, corporate identity packages, invitations, personal stationery, and high-end packaging. The Technical Products business produces durable, saturated, and coated base papers for markets in over 40 countries that include medical packaging and heat transfer technical paper. Finally, the Pulp business operates a mill in Nova Scotia that produces approximately 260,000 metric tons of northern bleached softwood kraft pulp per year, supplying it to North America and Europe. Currently employing over 1,200 people in the U.S. and Canada, the company sells its products through sales and marketing organizations, retail stores and directly through its own web site.

Engaging in an environmentally-friendly forest management program, NP protects some of their land in an effort to preserve the land's cultural value and habitat. Currently, the company is aspiring to meet its goal of becoming a leading paper and technical products company. In order to improve it efficacy and concentrate its operations, it has sold its Terrace Bay pulp mill and associated assets to Terrace Bay Pulp Inc. and Eagle Logging Inc. Meanwhile, it expanded its operations in a different direction; Europe. With a $218 million purchase of Germany's FiberMark's subsidiary, NP is building its technical products business, to be operated under the name Neenah Germany. The acquisition includes three mills that will produce a wide range of products that had combined net sales of about $221 million in 2005.

Such business activity has translated into somewhat structured growth for NP along with a market capitalization of $518.33 million. During the past year, revenues grew by 3.61%, with year-over-year quarterly revenue growth somewhat faster at10.70%, which compares favorably to the industry average of 2.20%.

Profitability is also a growing factor in the financials of this recent spin-off. While the firm has a trailing 12 month gross margin of 8.27% compared to the industry average of 16.33%, it has demonstrated an impressive return on equity (ROE) of 16.82%, trouncing the industry average of 0.60%.

Most important, however, is that according to our algorithms, the stock appears to be growing at a reasonable price. Given its strong fundamentals, its trailing 12 month price to earnings (P/E) ratio of 23.91 is on par when compared to the paper and paper products industry average of 24.76.

With all of these factors in mind, it seems that NP can very well reach its goal of becoming a leading provider of fine paper and technical products, potentially yielding broad benchmark-beating results in the process.

Disclosure: The author is the founder of Clear Asset Management, which provides the index that the Claymore Clear Spin-Off ETF is based upon.