NORTHERN TECHNOLOGIES INTERNATIONAL CORP (NTIC) stock intrinsic value fair value estimate & owner earnings analysis

Northern Technologies (NTIC) makes ZERUST corrosion-prevention packaging and chemicals and Natur-Tec compostable bioplastics. Fiscal 2025 sales were $84.2 million: ZERUST industrial $55.2 million (up 2.4%), ZERUST oil and gas $7.3 million (down 20.7%), and the rest Natur-Tec. A large part of its economics sits in about fifteen foreign joint ventures it does not control. Their profits show up in NTIC's accounts, but shareholders only receive the cash dividends those ventures choose to pay. Those dividends have fallen from $5.6-6.4 million a year in 2017-2023 to $1.6 million in fiscal 2025. What the business earns for its owners. We measure cash earnings after stock pay, after the spending needed to keep the business running (including capitalized software, which has been unusually heavy for the last two years because of a new ERP system), and with working-capital swings removed. On that basis, per share earnings over the last ten fiscal years were: 2016 $0.16, 2017 $0.48, 2018 $0.46, 2019 $0.39, 2020 $0.26, 2021 -$0.07 (a large plant expansion), 2022 $0.49, 2023 $0.16, 2024 $0.31 and 2025 -$0.32. Two more deductions apply. First, the majority-owned subsidiaries in Brazil, India and Sri Lanka pay about $0.09-0.10 a share each year to local partners. Second, about $0.06 a share of interest is added back so that the business can be valued before its lenders. After both, the ten-year median is roughly $0.25 a share of business cash. The window covers a full cycle: the 2018 peak, the 2020 shutdown, the 2022 inflation boom, and the 2024-2025 slump in joint-venture income and oil and gas demand. The last two years are mixed. In the nine months to May 2026, operating cash flow was negative $0.76 million, but net sales were up 12% to $69.5 million, equity income from the joint ventures rose to $3.8 million, and capitalized software fell to $0.2 million. Fiscal 2025 actual growth was sharply negative, so year one of the base case starts at roughly zero, below the long-run level, not at a recovery. Cases. In each case the earnings figure is the cash left after the minority partners' share. Base: no business cash in fiscal 2026, as the nine-month cash flow shows. Earnings return to about $0.20 a share by 2028 as software spending falls back to its historical $0.1-0.2 million and joint-venture dividends recover toward the middle of their ten-year range. That level holds because the ZERUST joint-venture network and its fee stream have run since the 1980s. No growth is credited: oil and gas expansion and Natur-Tec distribution deals depend on new customers, so they are not counted. The business is worth about $29 million, or $3.06 a share. It owes net about $7.9 million ($15.2 million of bank borrowings against $7.3 million of cash at May 31, 2026), or $0.83 a share, leaving $2.22. Bear: modeled on the 2020 shutdown, when sales fell 15% and joint-venture income fell 43%. Two more years of negative cash flow follow (-$0.15, then -$0.20 a share), with the revolver at its limit. Earnings then recover only to $0.10 a share, because joint-venture dividends stay near today's trough and the Brazil/India partners keep taking their share. The business is worth about $10 million ($1.04 a share), less $0.83 of debt, leaving about $0.21. The fall is limited because the company owns its Ohio and Minnesota facilities and holds joint-venture stakes carried at $30 million, which could be sold or borrowed against. Bull: the ZERUST network performs as it did in 2017-2019 and 2022, with joint-venture dividends back to $5 million or more and capex back at its historical 1-2% of sales. Earnings reach about $0.36 a share. The business is worth about $54 million ($5.66), less $0.83 of debt, or $4.83. Debt. The JPMorgan revolver ($10 million at the 2025 year end, $11.8 million drawn at May 2026) is renewed one year at a time. NTIC broke its fixed-charge-coverage covenant at August 2025 and got a waiver. This is the main thing that could go badly wrong. If the bank declined to renew, the company would likely have to raise equity or sell part of a joint-venture stake. The bear case allows for that by giving no credit to any recovery above a trough level. Margin-of-safety price. We are not confident about the earnings level. In five of the last ten years, owner cash was below $0.20 a share, and the best years rely on dividends from ventures NTIC does not control, so it cannot make them pay. The worst plausible outcome is a lost bank line during a downturn, which would force a stake sale or dilution at a low price. The joint-venture stakes and owned property are the cushion. If we are wrong about joint-venture dividends recovering and about software spending fading, the shares are worth roughly the bear figure. While waiting, the business pays very little: the dividend was cut to about $0.02 a share per quarter and the bank restricts payouts. The margin-of-safety price is $1.00. From that price, even a recovery only to the ten-year median cash level ($0.25) implies about a 20% annual return. Values well above that depend on joint-venture dividends the company cannot control and we cannot forecast. Changes since the previous analysis. The previous figures are not comparable because they were calculated on a different basis. In the business itself, the nine-month results to May 2026 show sales up 12%, recovering joint-venture income and much lower software spending. Against that, cash flow was negative and bank borrowings rose about $2.5 million.