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from Outstanding Investor Digest's December 31, 1996 Edition

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CENTURY MANAGEMENT'S
ARNOLD VAN DEN BERG

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OID: What can you tell us about how Moore Products stacks up competitively?
Van Den Berg: It's interesting that you ask that -and maybe that accounts for some of the pressure that they've experienced on their margins.
But International Paper - a major player in one of their fields - selected Moore as its supplier just last year. They entered into what they call an alliance agreement.

OID: Meaning?
Van Den Berg: Meaning that International Paper was so enthused about it that they took it beyond just the normal relationship. They entered into a long-term corporate alliance agreement in which International Paper will use Moore Products as the primary supplier of distributed control systems. The agreement covers all International Paper production and R&D facilities worldwide, all subsidiary companies in which International Paper holds a controlling interest, and all engineering contractors used by International Paper.

OID: Do you know Moore's current market share?
Van Den Berg: I think they're a leader in most of the niches they're in. And they're in some pretty good niches. My sense is that they're so specialized - like this deal they put together with International Paper - that it's almost like they're the only ones doing it. A lot of their products and services are more or less tailored to the individual customer. They're selling the hardware, the software and the consulting in one package.
However, we've asked Moore the same question. And they tell us that even they don't know. Apparently, this is an extremely fragmented, highly specialized market. So it's been very difficult to nail down market shares.

OID: But isn't Moore competing with companies that are far larger - with distribution capabilities and R&D budgets to match?
Van Den Berg: Moore's competitors include Siebe and ABB Asea Brown Boveri, Inc., although we believe the Industrial Automation and Control Division of Honeywell is the one they meet in the marketplace more often than anyone else.
So how do they compete against larger competitors? Well, again, these guys are engineers first and foremost. This is their area. They're totally committed to it and have been for many years - since the company was founded in 1940. And that commitment and focus translate into developing excellent products.
Also, in the scientific world, anything having to do with measurement and process control is a very necessary and valuable service - in part because it relates to plant safety.

OID: Interesting.
Van Den Berg: Second, they're a niche player. They operate in niches that are too small for bigger companies. For example, Moore has developed proprietary software to run some of its measurement products. Well, you know that Microsoft isn't going to get into a field like that where potential sales are so limited. There's just no way for them to justify it.

OID: And you don't expect IBM to set up a division to compete with Moore, either.
Van Den Berg: Exactly. And there are many, many different niches available for them to serve - although the main industries they serve are probably oil and gas, paper, textiles and chemicals. They serve pharmaceuticals. They even have some services and devices specifically designed for the metal business. So they're able to serve quite a few industries and, therefore, also not be dependent on any single industry.
Wherever you need measurement - which is in almost every technical industry - they sell their products. Some they sell right off the shelf and others they design for that particular industry. They're a $120+ million company.

OID: Actually, it's closer to $140 million in 1996.
Van Den Berg: So they do have substantial sales. And 22-25% of their sales are foreign. So it looks like they have global potential, as well.

OID: And I believe I read somewhere that they have offices in Brazil, the U.K. and Hong Kong, among others.
Van Den Berg: I think that's right. And they're very well thought of from a service/product quality perspective in their industry and among their customers. But the Street doesn't know about 'em - and the few that do aren't too fond of 'em because of their stock price and because of the way they manage the company, etc.

OID: Plus, it's hard to imagine anyone making a living trading this company's shares.
Van Den Berg: That's right. I don't think anybody follows this company. With only 2.6 million shares outstanding, nobody at a major brokerage firm would bother writing about this thing - even if they thought it was a good idea.

OID: That's a great sign.
Van Den Berg: Yes. It's not followed at all. If you talk to management, you'd see another reason why not: This management doesn't really want to bother with it. They're obviously not in there trying to promote their stock. They're just running their business. They just say, "If you like the stock, buy it. And if you don't, don't."
On the other hand, I really believe that if you were to take Moore Products to 10 value players, I don't think too many of them would disagree with the basic premise that this thing is worth twice what it's selling for.

[Editor's note: In fact, Moore Products' latest proxy shows Peter Cundill & Associates and Quest Advisory owning 7.6% and 6.3%, respectively.]

OID: And, certainly, the arrival of the president of their leading competitor is an encouraging sign. Apparently, he thinks Moore has what it takes.
Van Den Berg: That's certainly true. However, again, they have some very strong market positions that you can count on - where they're pretty firmly entrenched.
But, frankly, their sales are growing 20% a year. What more do you need to know?

OID: Good point - for now, at least.
Van Den Berg: So I think they're very competitive. Also, they're not necessarily in markets that are experiencing explosive growth. For example, we've seen some perk up in oil and gas, but it isn't exactly like that business is booming. And I don't think the chemicals, textiles, utilities and agriculture areas are doing anything that would suggest that Moore should be in any kind of boom period or anything of the sort.
So the fact that they're increasing their sales at a time when the industries they serve are kind of in neutral indicates to me that their products are competitive and that they're finding some good opportunities.

OID: Although, in their latest annual report, management points to "strong economic conditions" in their "traditional process control markets".
Van Den Berg: Certainly, their business has picked up. But my point is simply that business is not exactly booming for their major customers - and yet Moore's sales are growing very nicely.

OID: Also, for whatever it might be worth, although total sales were up 20% in '95, it looks like their domestic sales were only up slightly over 15%, whereas their international side was up over 40%.
Van Den Berg: They're trying to build their business in the Asia Pacific region and Europe and Latin America. So that's fine with me. It just suggests they're succeeding.

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