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Daily Letter | 1
28 July 2010

Nalco Holding Company
BUY
NLC : NYSE : US$24.77

Target: Under Review

John Quealy, CPA jquealy@canaccordgenuity.com Chip Moore, CFA cmoore@canaccordgenuity.com Mark Sigal msigal@canaccordgenuity.com

1.617.371.3837 1.617.371.3879 1.617.788.1591

COMPANY STATISTICS:
52-week Range: Avg. Daily Vol. (000s): Market Cap (M): Shares Out (M) fd: 16.50 - 29.25 1641 US$3,448.0 139.2

Sustainability -- Water Technologies

Q2/10 FIRST LOOK: BEAT & RAISE AS GROWTH HITS A NEW PHASE
Investment recommendation
Our bullish thesis on Nalco remains firmly intact. While near-term Gulf dispersant chatter stays elevated (lawsuits disclosed in 10-Q), we find management’s strategic and productivity efforts paying off. Nalco is uniquely positioned to help its customers "get clean and get efficient,” in our view. Reiterate BUY.

SHARE PRICE PERFORMANCE:

Investment highlights
• Nalco beat top /bottom and saw solid organic growth, while increasing its full-year outlook. Notably, Nalco now expects EPS to “exceed $1.40” in 2010, vs. prior $1.30+ guidance (Street at $1.43). Company targets high-single-digit organic revenue growth (including dispersant sales), with FCF>$150M (up from prior $100M+). Nalco reported Q2/10 revenues/EPS of $1.09B/$0.41 (including $0.05 in unfavorable taxes) vs. our $975M/$0.30 estimates and consensus of $990.3M/$0.34. Excluding ~$70M in Gulf dispersant sales, organic sales were up 9.4% Y/Y (Energy 14%, Paper 9% & Water up 6% Y/Y). Adjusted EBITDA came in at $198.5M (Q2 record), while productivity initiatives (~$63M savings YTD) outpaced increased growth investments. Cash generated from ops was $102.4M ($70.8M FCF), driven by improved receivables and inventory management. BRIC+ growth was 40%+ (nominally), while Asia grew 12.1% organically.

COMPANY SUMMARY:
Nalco is the leading water treatment and process improvement company, serving a broad spectrum of industrial and institutional customers around the world....

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