Penn Wealth Publishing

2015.06.14 Journal of Wealth & Success Vol 3 Issue 23

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10 wealth & success volume 3 issue 23 June 14, 2015 wealth & success Copyright 2015. All Rights Reserved. investment intelligence Knoll Inc. No American company better epitomizes the modernist movement born out of Germany's famed Bauhaus than Knoll, Inc. The spirit of Hans and Florence Knoll still drives the firm's culture. Suitable for the Global Leaders Club Business Equipment Munich, 1907. A group of German artists and craftsmen band together with the goal of setting a new standard of excellence in workmanship and design for mass-produced goods and architecture. They called their movement the Deutscher Werkbund, or simply Der Werkbund. Following the disastrous advent of World War I, German artists and architects formed the Bauhaus (literally "house of construction"), an art school dedicated to the nascent work of Der Werkbund, and what would become the birthplace of the modernism movement of the 20th century—a move- ment that embraced the use of steel, glass, tubular metal, and crisp, clean lines. To grasp the concept of the move- ment, picture the office interior of the fictional Sterling Cooper ad agency from the hit series "Mad Men." (See pic- ture on following page.) A young German named Hans Knoll, born in Stuttgart during the first year of the Great War, embraced the Bauhaus, heart and soul. In 1938, the driven 24-year-old visionary emigrated to the United States. Meanwhile, a gifted young orphan, Florence Schust, becomes intensely interested in and skilled at modern architecture, ulti- mately being accepted to Cranbrook, America's version of Der Bauhaus. After completing studies at Cranbrook, the Architectural Association in London, and the Illinois Institute of Technology, Florence moved to New York to work as an architect. While working on an interior design project, she meets Hans. The two brilliant minds hit it off immediately, and the rest is history. The Knoll Company began hiring the greatest minds of the modernist architecture movement. Knoll today. Today, Knoll KNL operates manufacturing sites in Pennsylvania, Michigan, Ontario, and Italy. Over 40 Knoll designs are part of the permanent design collection of The Museum of Modern Art in NYC, and the company's designs can be seen throughout the "industrial" offices of most giant and startup tech firms in and around Silicon Valley. Knoll's client base consists of Fortune 1,000 companies, government agencies, and other organizations in a wide range of industries. Knoll Europe provides a one-stop resource for European com- panies to design and fill their unique office environments. The Wa Desking System was designed specifically for the European market. Knoll is committed to both organic growth and growth through acquisition, as long as the marriage makes sense. Last year it purchased upscale home furnishings designer Holly Hunt for $95 million, which should allow the company to expand its share of the luxury market and increase its international revenue by 40%. Investment thesis. We are selecting the company as a momentum play, adding it to the Penn Global Leaders Club. While its growth trajec- tory has been steadily positive, we see that trend continuing in the near- and mid-term future. We expect 10% revenue growth this year, following up on the explosive 20% growth rate experienced last year. While the Studio segment will benefit from the Holly Hunt pickup, an improving economy will help the office segment as companies feel more comfortable about reno- vations and upgrades. In the company's European division, the massive amount of euros being pumped into the econ- omy cannot all go to graft—millions will seep into the hands of companies like Knoll. Despite the steady growth of the company's stock price, take a look at the P/E ratio on the following page. It may have been a bit steep at 32; it is a downright steal at 19. We added KNL to the PGLC at $22.79 with a price target of $28 per share. Though we consider this holding a lower risk, despite its $1.1 billion market cap, a weaker recovery in upper-scale residential construction or a slowing of new office building construction could threaten our target. The content of this report reflects the personal views, opinions, and recommenda- tions of the individuals at Penn Wealth Publishing. While measures are taken to help assure the accuracy of data, no guarantees can be made and the firm is not liable for any losses incurred by subscribers.

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