MFRI Stock Research Report By 21st Century
May 30, 2007

21st Century expects MFRI will generate 20% revenue and 50% EPS growth over the next two years. We are most optimistic about the company’s Piping Systems segment. This business is likely to grow at a 40% rate for the foreseeable future, becoming the company’s largest segment. Historically, approximately 75% of this segment’s revenue has been driven by district heating and cooling systems in the U.S, which is a fairly mature market and should experience only modest growth going forward.

However, over the last year, MFRI has entered two new markets that should add significantly to growth and profitability going forward. The company’s new Perma-Pipe ME subsidiary is well-positioned to capitalize on the significant growth in natural gas production and district cooling networks in the United Arab Emirates. Additionally, the company’s focus on deep water oil drilling in the U.S. and abroad has begun to generate significant incremental growth. As a result, the Piping Systems segment has been a significant contributor to the recent growth in MFRI’s backlog. The tables below show total backlog over the last two years and the approximate revenue breakout by end market in the Piping Systems segment.

Albeit not as strong as the Piping Systems business, the Filtration Products division should also generate solid growth going forward. We expect Filtration Products will grow at approximately 10% over the next couple of years driven by demand from the mini-mill steel industry. This end-market continues to show signs of sustained growth. The transition to electric arc furnaces appears to be an enduring trend as recycled scrap steel production continues to grow. Additionally, we believe recent EPA regulations restricting particulate matter emissions and the new subsidiary in South Africa will also enhance sales.

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