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					                                                     Buy Report
                                            Ricardo Vielledent & LaurenCastro


                                    Recommendation: Buy, Half Position
                                          approx. 1,000 shares

                  Consistent profitability show strong potential for future earnings
                  Strong position in its industry and in its 5 Business segments
                  Favorable outlook for 2007
                  Undervalued in our multiple valuations, and slightly undervalued in our DCF analysis
                  Strong Financials with no LT Debt eliminating financial risk

                                                                                        At a Glance:
                                                                                        Ticket: ABM
                                                                                        Exchange: NYSE
                                                                                        Sector: Industrials
                                                                                        Industry: Business Services

                                                                                        Market Cap: $1.25 Billion
                                                                                        Avg. Volume: 257,634

                                                                                        52-Week High: $26.30
                                                                                        52-Week Low: $16.11
                                                                                        Current Price (2/2): $25.74

                                                                                        Beta:0.80
Recent Company News                                                                     EPS (ttm):1.88
                                                                                        P/E (ttm): 13.72
January 8, 2007: ABM Industries Inc names new President for Security Business           P/B (mrq): 2.35
December 12, 2006: ABM Industries Inc. authorizes buyback of up to two million shares   P/S (ttm): 0.47
of company stock.
December 12, 2006: ABM raises quarterly dividend by 9.1%.                               PEG: 2.41
November 21, 2006: ABM is ranked among the top 25 California companies with large
percentage of women executives.
September 6, 2006: ABM continues best-ever quarterly dividend rate
August 15, 2006: ABM announces resolution of World Trade Center Insurance Litigation
– ABM to receive $80.0 million for Business Interruption Insurance Claims.
August 15, 2006: AMPCO System Parking Awarded Contract with Sacramento Airport
June 26, 2006: ABM Janitorial Services Awarded Contract Renewal with Salt River
Project
June 9, 2006: ABM names new President for AMPCO System Parking
May 10, 2006: Ampco System Parking Awarded Contract with the City of Minneapolis
March 29, 2006: ABM authorizes buyback of up to two million shares of company stock.
                                                      Table of Contents


Company Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . …….……. . . 1

Company Profile and Operating segments . . . . . . . . . . . . . . . . . . . . . . . . . . . …………. . . . . 3-5

Company History ………………………………………………………………………….… 5-6

Industry Overview and Competitive Landscape……..………………………………...……. 7

Competitors…………………………………………………………………………………… 8

Financial Ratios………………………………………………………………………………. 9-10

Extended DuPont Model……………………………………………………………………… 11

Multiple Valuations…………………………………………………………………………… 12-13

ProForma Income Statement.…………………………………………………………………. 14

DCF Analysis…………………………………………………………………………………...15-16

Analysts’ Coverage/Opinion……………………………………………………………………16

Investor Relations/ Recommendation……………….…………………………………………..17

Balance Sheet……………………………………………………………………………………18

Income Statement………………………………………………………………………………..19

Value Line………………………………………………………………………………………. 20




                                                                                                                            2
                                         Company Profile1
ABM Industries Incorporated (ABM) is a leading facility service contractor for commercial, industrial,
institutional and retail facilities. Headquartered in San Francisco California, ABM was reincorporated
in Delaware on March 19, 1985 as the successor to a one-man window washing business founded in
California in 1909. They currently operate in a number of cities throughout the United States and in
British Columbia, Canada. Because of ABM’s prodigious number of employees (more than 75,000),
the range of services performed, and its geographical infrastructure, the company has become a leader
in outsourced facility maintenance and operations services in the United States.

Effective October 1, 2006, International Business Machine (IBM) provides the Company with
substantially all of the information technology infrastructure and services. During the fiscal year ended
October 30, 2006, the Company acquired substantially all of the operating assets of MWS
Management, Inc., dba Protector Security Services and Fargo Security, Inc., both security guard
services companies, and Brandywine Building Services, Inc., a facility services company.

                                       Operating Segments
ABM conducts its business through a number of subsidiaries, which are grouped into five segments
based on the type of the business operations they perform. As of October 31, 2006 the five segments
were:




 ◙ Janitorial. The Company’s Janitorial services subsidiaries operate primarily under the names
―ABM Janitorial Services,‖ and ―American Building Maintenance.‖ Janitorial services include floor
cleaning and finishing, window washing, furniture polishing, carpet cleaning and dusting, as well as
other building cleaning services. These are provided for a variety of facilities such as commercial
office buildings, industrial plants, financial institutions, retail stores, shopping centers, warehouses,
stadiums and arenas, airport terminals, etc. The Company’s Janitorial subsidiaries maintain 111 offices
and operate in 48 states, the District of Columbia and one Canadian Province.




◙ Parking. The Company’s Parking services subsidiaries operate primarily under the names ―Ampco
System Parking,‖ ―Ampco System Airport Parking,‖ and ―Ampco Express Airport Parking.‖ The
Company’s Parking subsidiaries maintain 27 offices and operate in 28 states. They operate over
770,000 parking spaces throughout the United States—off-airport parking and approximately 1,600
parking lots and garages in airports. The company also holds 17 parking shuttle bus service contracts


1
    2006 ABM 10K
                                                                                                        3
◙ Security. The Company’s Security services subsidiaries operate primarily under the names
―American Commercial Security Services‖ and ―Silverhawk Security Specialists.‖ They provide
security officers; investigative services; electronic monitoring of fire, life safety systems and access
control devices; and security consulting services to a wide range of businesses. Subsidiaries maintain
61 offices and operate in 34 states and the District of Columbia.




◙ Engineering. The Company’s Engineering services subsidiaries operate primarily under the name
―ABM Engineering Services,‖ a wholly owned subsidiary that has maintained ISO Certification since
1999—a quality standard comprised of a rigorous set of guidelines and good business practices. It is
the only national engineering services provider of on-site operating engineers to earn this prestigious
designation. The company provides facilities with on-site engineers to operate and maintain
mechanical, electrical and plumbing systems designed to maintain equipment at optimal efficiency for
customers. Subsidiaries maintain 16 branches and operate in 40 states and the District of Columbia.




◙ Lighting. The Company’s Lighting services subsidiaries operate primarily under the name ―Amtech
Lighting Services.‖ They provide relamping, fixture cleaning, energy retrofits and lighting
maintenance to a variety of commercial, industrial and retail facilities—the Company also repairs and
maintains electrical outdoor signage and provides electrical services and repairs. Subsidiaries maintain
27 offices and operate in 50 states and the District of Columbia.




                                                                                                           4
                   2006 Revenue By Segment

                                            Lighting
                                             4.17%        Corporate
                              Engineering                  0.10%
                               10.52%




                   Security
                   11.35%                                                               Janitorial
                                                                                        Parking
                                                                                        Security
                                                                                        Engineering
                                                                                        Lighting
                                                                          Janitorial    Corporate
                                                                           57.64%


                       Parking
                       16.22%




As shown by the graph above, during the 2006 fiscal year ABM received most of its revenue from the
Janitorial segment, which generates over half of the revenue of the entire company. Parking follows in
second place with the Security and Engineering segments following closely behind. ABM’s lighting
and corporate segments generate the least amount of the company’s revenue. Although the numbers
above are only representative of the 2006 fiscal year, they have followed similar trends throughout the
years.

                                                       Company History2
            1909: The company that in 1994 will become ABM Industries Incorporated is founded in
            San Francisco as a one-man window washing business by Morris Rosenberg.

           1927: By acquiring Easterday Janitorial Supply Company of Los Angeles, San Francisco
and Portland, the Company provides both janitorial services and supplies to its customers.

1962: American Building Maintenance Industries formed to become a publicly-held company. Ted
Rosenberg is named the first Chairman of the Board.

1965: The stock of the Company is listed on the American Stock Exchange. The company pays its first
dividend, a trend that continues to this day.
2
    www.abm.com
                                                                                                      5
1967: Ampco Auto Parks, which will become Ampco System Parking in 1993, becomes the newest
Division of the Company.

1968: The Company adds a Mechanical Services Division by acquiring Commercial Air Conditioning
of Northern California and American Air Conditioning of Los Angeles.

1972: The stock of the Company is listed on the New York Stock Exchange. The Company adds a
Lighting Division to its growing Family of Services.

1991: The Company establishes ABM Engineering Services as a full-fledged Division.

1994: To reflect the diversification of American Building Maintenance Industries into facility services
other than building maintenance (such as parking and security services) the Company's name is
changed to ABM Industries Incorporated, which is abbreviated to ABM Industries, Inc.

1997: ABM Industries acquires the Janitorial and Engineering Services from Ogden Corporation.

1999: Amtech Lighting Services is named "Green Lights Ally of the Year" by the U.S. Environmental
Protection Agency for outstanding energy efficiency initiatives, and ABM Engineering Services
receives ISO 9002 certification, which is the most prestigious recognition of quality assurance
worldwide.

2001: Seventeen employees of the ABM Family of Services are fatally injured in the terrorist attacks at
the World Trade Center in New York City on September 11th. ABM divests the operations of its
Easterday Janitorial Supply subsidiary to AmSan West, Inc.

2002: ABM aquires Lakeside Building Maintenance Inc, of Chicago, the largest acquisition in ABM
history.

2004: ABM acquires Los Angeles based Sentinel Guard Systems.
ABM acquires Colin Service System, Inc., a facility services company based in New York.
ABM acquires northeastern U.S. janitorial operations of Initial Cleaning Services.
ABM acquires Security Services of America.

2005: ABM subsidiary, Security Services of America (SSA), acquires Amguard Security and Patrol
Services, based in Germantown, Maryland.
ABM sells substantially all of the operating assets of its wholly owned subsidiary, CommAir
Mechanical Services, to Carrier Corporation
ABM acquires the commercial janitorial cleaning operations in Baltimore, Maryland of the Northeast
U.S. Division of Initial Contract Services, Inc.
ABM acquires the customer contracts of Brandywine Building Services, Inc., of Wilmington, Delware




                                                                                                      6
                                         Industry Overview
                                               ABM Industries is part of the Industrials sector and is in
                                               the Business Services industry. It is also in the
                                               Environmental & Facilities Services sub-industry. This
                                               industry comprises establishments primarily engaged in
                                               providing staff to perform a combination of support
                                               services within a client's facilities. Establishments in this
                                               industry typically provide a combination of services, such
                                               as janitorial; maintenance; trash disposal; guard and
                                               security; mail routing reception; laundry; and related
                                               services to support operations within facilities. The
                                               industry has a positive outlook for 2007 with earnings
growth expected to be at least 10%. In 2006 the Environmental & Facilities Services sub-industry rose
20.9% compared to a 13.3% rise for the S&P 1500 Index. It is however a mature industry with high
competition which is thus leading to price erosion and could affect ABM Industries negatively. To
offset this, there has been an increasing trend in the enhancement of customer services in an effort to
retain market share by many companies in this industry. Furthermore there is a developing trend
towards outsourcing by companies seeking to cut expenses therefore, increasing demand for ABM
services according to Value Line. Overall, the industry has a positive overview, and ABM Industries
has the potential to capitalize on these positive trends.


                                      Competitive Landscape3
ABM is part of a highly competitive industry whose competition is based primarily on price and
quality of service. The company competes with operating divisions of a few large, diversified facility
services and manufacturing companies on a national basis, but their biggest competition comes from
large numbers of mostly regional and local owner-operated companies. These result from the low cost
to entry of to the facility services business and are located in major cities throughout the United States
and in British Columbia, Canada; with particularly intense competition in the janitorial business in the
Southeast and South Central regions of the United States. Indirectly, the Company competes with
building owners and tenants that can perform internally one or more of the services provided by the
Company. These building owners and tenants might have a competitive advantage when the
Company’s services are subject to sales tax and internal operations are not. Furthermore, competitors
may have lower costs because privately owned companies operating in a limited geographic area may
have significantly lower labor and overhead costs. These strong competitive pressures could inhibit the
Company’s ability to increase prices even as costs rise, thereby reducing margins.




3
    2006 ABM 10K
                                                                                                           7
                                              Competitors4
                                                                       Central Parking Corporation (CPC)
                                                                                      Market Cap: 651.90M
                                                                                                   P/E: 19.71
Central Parking Corporation is a provider of parking and related services in the United States, Canada, and
the United Kingdom. It engages in the ownership, leasing, and management of multilevel parking facilities
and surface lots. It also provides ancillary services, including parking consulting, such as parking facility
design, layout, and utilization; on-street parking fee collection and enforcement services; shuttle bus and
van services; and accounts receivable billing systems and services. As of September 30, 2006, the
company operated 1,520 parking facilities under management contracts and 1,296 parking facilities under
leases.

                                                                                  ServiceMaster Co (SVM)
                                                                                        Market Cap: $3.80B
                                                                                                   P/E: 22.33
ServiceMaster is a national service company that serves both residential and commercial customers. They
provide lawn care and landscape maintenance; termite and pest control; home warranty and home
inspection services; plumbing, drain cleaning, heating, ventilation, air conditioning and electrical services,
and cleaning, disaster restoration and furniture repair. These services are provided through a network of
over 5,500 company-owned and franchised locations and operate via five principal segments: TruGreen
ChemLawn, TruGreen LandCare, Termix, and American Home Shield and other Operations.

                                                                                         Ecolab Inc. (ECL)
                                                                                      Market Cap: $11.00B
                                                                                                  P/E: 32.39
Ecolab develops and markets products and services for the hospitality, foodservice, healthcare and
industrial markets. The services they provide include cleaning, sanitizing, pest elimination, maintenance
and repair products and services primarily to hotels and restaurants, healthcare and educational facilities,
quick-service (fast-food and other convenience store) units, grocery store, commercial and institutional
laundries, light industry, dairy plants and farms, food and beverage processors, pharmaceutical and
cosmetics facilities and the vehicle wash industry. The Company operates in three segments: United States
Cleaning & Sanitizing Segment, United States and Other Services Segment and International Segment.

                                                                       Standard Parking Corp. (STAN.O)
                                                                                    Market Cap: $373.80M
                                                                                                  P/E: 22.97
Standard Parking Corporation provides onsite management services at multi-level and surface facilities for
all major markets of the parking industry. They operate and develop parking properties throughout the
United States and Canada. The Company’s client base includes private and public owners, managers and
developers of major office buildings, residential properties, commercial properties, shopping centers, and
other retail properties, sports and special event complexes, hotels, and hospitals and medical centers. As of
December 31, 2005, the company manages more than 1,900—parking facilities and 112 parking-related
and shuttle bus operations serving 64 airports.

 4
     www.reuters.com

                                                                                                           8
     Insurance Claims Related to the Destruction of the World Trade Center in New York
     City on September 11, 2001

      On September 11, 2001, ABM Industries lost their largest single job-site during the destruction of the
      World Trade Center complex in New York—the site generated annual Sales of approximately $75.0
      million for the company. Fortunately, the Company had commercial insurance policies covering
      business interruption, property damage and other losses related to these losses. As a result of these
      losses, the Company has been engaged in protracted litigation with Zurich Insurance Company to
      recover its losses of business profits. The litigation was settled on August 15, 2006 for $80.0 million
      and the proceeds were received in September 2006. The Company recognized the $80.0 million
      settlement into income from continuing operations in the fourth quarter of 2006. Thus, when
      calculating the financial ratios for the valuation of the Company, we taken this into account and we
      have subtracted the $80.0 million from the income from continuing expenses recorded in the fourth
      quarter of 2006 and $95.2 received in accumulated payments from Zurich in the relevant periods.

                                                  Ratio Analysis
      Liquidity Ratios

    LIQUIDITY
                         2006 (WTC Insurance
                  2006     Claim Included)        2005   2004   2003    2002   CPC     SVM    ECL      STAN    Industry
  Current Ratio   1.73          1.98              1.89   1.91   1.95    1.88   0.85    1.07   1.23      0.82     1.81
   Quick Ratio    1.66          1.91              1.81   1.83   1.87    1.75   0.85    1.00   0.92      0.82     1.65

      At a first glance, ABM’s current and quick ratios appear to be those of the ideal company—during
      2006 these were above and beyond those of their competitors and the industry and have been
      increasing steadily throughout the years. After deducting the World Trade Center collected insurance
      money, though, ABM’s ratios are not as impressive but are still well above those of it’s competitors.
      The company’s current ratio shows that it would be better able to pay off its current liabilities by
      liquidating its current assets that it’s competitors but not as able as the industry as a whole. The more
      conservative quick ratio shows, once again, that ABM has greater liquidity than its competitors and
      just about the same liquidity as the industry. The quick ratio might be a more applicable ratio for ABM
      since its inventories consist of only service-related supplies and don’t make up such a significant
      portion of the company’s current assets. Although ABM’s liquidity ratios were lower in 2006 than in
      the previous years, we do not believe this to be significantly unfavorable, since these are still higher
      than that of their competitors.

      Asset Management Ratios

    ASSET MANAGEMENT
                      2006      2005      2004      2003        2002      CPC         SVM       ECL        STAN        Industry
    CA Turnover       5.06      5.14       4.82      4.88        4.89     6.93         3.59     3.36        0.01          NA
Fixed Asset Turnover 81.64     78.83      74.99     66.30       52.22     3.56        19.93     5.43        0.04          NA
Total Asset Turnover  2.95      2.96       2.88      3.02        3.17     1.34         1.06     1.22        2.99         0.98
 Inventory Turnover  109.91    106.23     98.80     79.12       69.49     NM          28.60     6.84        NM           22.77
     SE Turnover      5.33      5.64       5.54      5.54        5.84     1.50         3.17     2.79        0.03          NA


                                                                                                                   9
      The total-asset turnover tells us that for every dollar in total-assets, ABM has generated $2.95 in
      revenue. This dollar generating power of their total assets is well above that of the industry and their
      competitors, with the exception of STAN, whom generates a close $2.99 in revenue. Also, the fixed-
      asset turnover ratio measures sales per dollar of the firm’s money tied up in fixed-assets. As shown
      above, ABM’s fixed-asset turnover ratio has been increasing throughout the years and is much higher
      than its competitors. This is not surprising because of the type of business that ABM engages in—
      which is heavily dependant on Fixed-Assets—and it is good to see that they are efficient at generating
      revenue from these. Furthermore, their current-asset turnover is well above those of their competitors,
      with the exception of CPC at 6.93 and has remained relatively consistent throughout the years. Finally,
      as seen by the Company’s SE Turnover, shows that ABM has done a consistent job of generating sales
      from their Stockholder’s Equity.

      Debt Management Ratios

         DEBT MANAGEMENT
                                       2006     2005   2004    2003   2002   CPC     SVM     ECL    STAN    Industry
          Debt-to-Asset Ratio          0.00     0.00   0.00    0.00   0.00   0.22    0.22    0.18    0.44      NA
          Debt-to-Equity Ratio         0.00     0.00   0.00    0.00   0.00   0.41    0.84    0.42    2.43     0.97
           Equity Multiplier           1.73     1.90   1.91    1.87   1.13   1.94    1.54    2.30    8.25      NA

      ABM Industries does not use any debt in their operations. This gives them an automatic advantage
      over their competitors who do use debt.

      Dividend Ratios

      DIVIDEND PAYOUT RATIO
        2006         2005      2004      2003       2002         CPC        SVM        ECL          STAN    Industry
       23.15%       35.80%    63.91%   20.50%      39.97%       5.75%      77.32%     28.70%        0.00%    17.25%

      Although ABM has been paying a smaller percentage of it’s earnings as dividends throughout the
      years, it still pays a higher dividend than its industry and most of its competitors. ABM might be
      holding off on paying off a bigger percentage of their earnings in order to use this money for expansion
      of the company or in order to finance acquisitions.

      Profitability Ratios

PROFITABILITY
                      2006      2005     2004     2003       2002         CPC        SVM      ECL        STAN    Industry
 Gross Margin        10.73%   10.56%    9.16%    10.02%     10.26%      -54.90%     37.52%   50.40%     12.61%    43.86%
Net Profit Margin    3.34%     2.24%    1.28%    4.02%      2.13%        3.11%      5.10%    7.39%      2.86%     11.45%
   EBIT Profit
     Margin          2.88%     2.48%    1.94%    2.40%        2.53%     10.59%      10.50%   11.95%     4.09%       NA
Return on Assets     9.85%     6.63%    3.69%    12.14%       6.75%     4.16%       5.39%    8.99%      8.56%     9.72%
Return on Equity     17.05%   12.60%    7.04%    22.70%       7.63%     7.79%       16.47%   20.42%     64.58%    22.09%

      As a percentage of sales, ABM’s Profit Margin is less than that of its industry and most of its
      competitors. Nonetheless, it has remained consistent throughout the years and its Gross Margin and
      EBIT Profit Margin are higher than they have been in the past five years, and it’s Net Profit Margin
                                                                                                                   10
has been rising since 2003—the reason the Margin in 2003 was higher is because they received a large
gain from the sale of discontinued operations during this fiscal year. Furthermore, ABM’s ROA is
more favorable than the rest of the industry and its competitors while its ROE is higher than only CPC
and SVM and slightly less than the industry.


EXTENDED DUPONT MODEL
            ROE         =    Net Profit Margin      x    Total Asset Turnover      x   Equity Multiplier
2006       17.05%       =          3.34%            x             2.95             x          1.73
2005       12.60%       =          2.24%            x             2.96             x          1.90
2004        7.04%       =          1.28%            x             2.88             x          1.91
2003       22.70%       =          4.02%            x             3.02             x          1.87
2002        7.63%       =          2.13%            x             3.17             x          1.13


CPC         8.08%       =          3.11%            x             1.34             x          1.94
SVM         8.33%       =          5.10%            x             1.06             x          1.54
ECL        20.74%       =          7.39%            x             1.22             x          2.30
STAN       70.55%       =          2.86%            x             2.99             x          8.25

The Extended DuPont Model shows us how the Return on Equity is derived and what factors
determine it. As mentioned above ABM’s ROE has been increasing throughout the past five years
(with the exception of 2003, because of the sale of discontinued operations). This improvement has
resulted from an increase in Net Profit Margin, which suggests that the company is doing a better job
of controlling costs whiling continuing to grow its sales.




                                                                                                     11
                                       Multiple Valuations

Price/Earnings Valuation

In our P/E Valuation in order to find the most likely price using P/E, we used the forward P/E for our
most likely scenario. For the pessimistic scenario we used the lowest P/E ABM has ever traded at
which was a P/E of 12.06. For the optimistic scenario the Industry average of 34.6 was used. In
calculating EPS, the most likely EPS of $1.49 was taken from the ProForma Income statement. For the
pessimistic and optimistic values we added and subtracted 15% to get $1.27 and $1.71, respectively.


                                                  Pessimistic Most Likely Optimistic
                                              EPS $     1.27 $       1.49 $     1.71
                     Pessemistic        12.06           15.27        17.97     20.66
           P/E       Most Likely        20.93           26.51        31.19     35.86
                     Optimistic          34.6           43.82        51.55     59.29



Price/Book Valuation

Book value per share has been increasing at a historical 3 year average of 7% including the trailing
twelve months, and is expected to continue this trend. Therefore, the most likely book value per share
we came up with was a 7% increase from 2006 of $11.90. Valueline predicted book value per share to
be $14.10 in 2007 which we decided to use as our optimistic scenario. For our pessimistic we used the
current book value per share of $11.13. For our P/B multiples we used a most likely P/B of 2.35 which
is the current multiple taken from Yahoo! Finance and Reuters. In order to come up with a pessimistic
and optimistic scenario we subtracted and added 15% to come up with values of 2.00 and 2.70
respectively.



                                                        Pessimistic Most Likely Optimistic
                                             BV/Share   $     11.13 $     11.90 $ 14.10
                 Pessemistic             2                     22.26       23.80     28.20
     P/B         Most Likely          2.35                     26.16       27.97     33.14
                 Optimistic            2.7                     30.05       32.13     38.07




                                                                                                    12
Price/Sales Valuation

In calculating the Sales per share for our valuation, the pessimistic scenario was arrived at by using
sales from the current 2006 income statement and dividing that number by the total amount of shares
outstanding in 2006 giving us a value of $56.22. For our most likely scenario we used what we are
expecting sales to be in 2007 and divided that by the number of expected shares outstanding which
gave us $63.01. For our optimistic we simply added 15% to our most likely sales per share giving us
$72.46. In finding the P/S for the most likely scenario we simply used the current P/S multiple given to
us by Yahoo! Finance and Reuters of 0.47. For the pessimistic and optimistic we subtracted and added
15% to the most likely scenario giving us a P/S of 0.40 and 0.54, respectively.


                                                         Pessimistic Most Likely Optimistic
                                              S/Share    $     56.22 $     63.01 $ 72.46
                     Pessemistic       0.40                     22.49       25.20     28.98
          P/S        Most Likely       0.47                     26.42       29.61     34.06
                     Optimistic        0.54                     30.36       34.03     39.13




Price to Cash Flow Valuation

In calculating cash flow per share, we identified a growing trend in the last 3 years and thus decided to
use the current cash flow per share value of $2.66 as the pessimistic scenario. In order to calculate the
most likely value we added 13.97%, the historical five-year growth rate, to get a value of $3.03. For
the optimistic scenario we added 10% to the most likely scenario to get a value of $3.33. In calculating
the P/CF we used the current P/CF of 9.66 as the pessimistic value. For the most likely and optimistic
values we increased the pessimistic by 5% and 10% respectively to get values of 10.14 for the most
likely and 11.15 for the optimistic scenario.



                                                          Pessimistic Most Likely Optimistic
                                              CF/Share    $     2.66 $       3.03 $     3.33
                  Pessemistic          9.66                     25.70        29.27     32.17
      P/CF        Most Likely         10.14                     26.97        30.72     33.77
                  Optimistic          11.15                     29.66        33.78     37.13




                                                                                                       13
                                             Pro Forma Statement

                                                ABM Industries Inc.
                                           ProForma Income Statement
                                           Fiscal Years Ended October 31
                                                   ($ in thousands)
                                Forecast         Forecast        Forecast        Forecast          Forecast      % of Sales
                                  2007             2008            2009            2010              2011
Sales growth                      10%              10%              7%              7%                7%

Net sales                   $ 3,071,935.00 $ 3,379,128.50 $ 3,615,667.50 $       3,868,764.22   $ 4,139,577.72     100.00%
Cost of Services            $ 2,733,100.57 $ 3,006,410.63 $ 3,216,859.37 $       3,442,039.53   $ 3,682,982.29      88.97%
Gross Profits               $   338,834.43 $   372,717.87 $ 398,808.12 $           426,724.69   $   456,595.42      11.03%
SG&A Expense                $   228,859.16 $   251,745.07 $ 269,367.23 $           288,222.93   $   308,398.54       7.45%
                            $          -   $          -   $          -   $                -     $          -


EBIT                        $    109,975.27 $     120,972.80 $    129,440.90 $    138,501.76 $      148,196.88       3.58%
Interest Expense            $           -   $            -   $           -   $           -   $             -         0.00%

EBT                         $    109,975.27 $     120,972.80 $    129,440.90 $    138,501.76 $      148,196.88       3.37%
Income Taxes                $     37,391.59 $      41,130.75 $     44,009.90 $     47,090.60 $       50,386.94      34.00%
Net Income                  $     72,583.68 $      79,842.05 $     85,430.99 $     91,411.16 $       97,809.94       2.22%

Common Shares Outstanding            48,752           48,752          48,752           48,752           48,752
Earnings Per Common Share   $         1.49 $           1.64 $          1.75 $           1.88 $           2.01

      Sales
      The historical sales growth average for ABM Industries Inc. in the last 5 years was 7.01%. After
      analyzing ABM Industries, we believe business prospects remain challenging and competitive, but see
      benefits in current trends and expansion efforts therefore justifying a 10% growth in sales for the first
      two years. Analysts also estimated a 10% sales growth for 2007. After 2008 we reduced sales growth
      to 7% due to the tough competitive nature of ABM’s business. We believe these sales growth
      assumptions to be very conservative.

      Forecast
      The Cost of Services and SG&A expense assumptions were calculated using a historical 3 year
      average of each as a percentage of sales. The historical average for Cost of Services was 88.97% while
      the SG&A expense average was 7.45%. In a similar manner, EBIT margin was calculated at 3.58% of
      sales. Due to an outlier in 2006 causing a considerable hike in the tax rate for ABM, I used a 34% rate
      which had previously been used in preceding years. Using the same historical average method as
      before, I calculated a Net Profit Margin of 2.22% for the five year forecast. We believe this to be a
      conservative measure of Net Profit Margin, which in retrospect has had a rising trend since 2003.

      Common Shares Outstanding
      The number of shares were held constant at 48,752,000 for the purpose of this Pro-Forma Income
      statement and DCF analysis.


                                                                                                                   14
                                         Free Cash Flow to the Firm

                                               ABM Industries Inc.
                                                     DCF Analysis
                                            Fiscal Years Ended October 31
                                                    ($ in thousands)
                                              Forecast          Forecast          Forecast          Forecast          Forecast
                                                2007              2008              2009              2010              2011
Net Income                              $          72,584   $        79,842   $        85,431   $        91,411   $        97,810
Plus:Depreciation/Amoritization         $          16,281   $        17,909   $        19,163   $        20,504   $        21,940
Less: Capital Expenditures              $          12,288   $        13,517   $        14,463   $        15,475   $        16,558
Less: Changes in NWC                    $          21,504   $        23,654   $        25,310   $        27,081   $        28,977
FCFF                                    $          55,074   $        60,581   $        64,822   $        69,359   $        74,214
PV of FCFF                              $          50,254   $        50,442   $        49,250   $        48,086   $        46,950

Terminal Value                                                                                                    $    1,697,714
PV of Terminal Value                                                                                              $    1,074,014
PV of FCFF                                                                                                        $      244,983
PV of Firm                                                                                                        $    1,318,996
Non-Current Liabilities Outstanding                                                                               $       26,917
Value of Equity                                                                                                   $    1,292,079
Shares Outstanding                                                                                                         48,752
Price Per Share                                                                                                   $        26.50


                                                            CAPM
                                        Equation: r = Rf
                                        B(E(Rm)-Rf)                  4.79% 10 Year U.S.
                                        Risk free rate                      Treasury Bond
                                        Beta                           0.80
                                        Risk premium                 6.00%
                                        r                            9.59%




                                               FCFF Value Drivers
                                       2007        2008          2009      2010          2011 2012-perp.
  Estimated Sales Growth                10%         10%            7%        7%            7%         5%
  Dep. as a % of Sales                0.53%       0.53%         0.53%     0.53%         0.53%      0.53%
  CapEx as % of Sales                 0.40%       0.40%         0.40%     0.40%         0.40%      0.40%
  NWC as % of Sales                   0.70%       0.70%         0.70%     0.70%         0.70%      0.70%

                                                                                                                       15
Depreciation

I forecasted a historical average of depreciation expense as a percentage of Sales. This was the only
non-cash charge added back to Net Income in the forecasted future cash flows of the DCF analysis.

Incremental Fixed Capital Investment

This percentage was taken from the historical ratio of the change in Capital Expenditures per change in
Net Sales at 0.40% of sales.

Net Working Capital

The change in Net Working Capital was calculated by taking the change in working capital per year
and the change in sales per year. I then calculated the increase in working capital as a percentage of
sales. This gave me a historical average as a percentage of sales of 0.70%.

Discount Rate

The discount rate was calculated using the Capital Asset Pricing Model due to the fact that there is no
outstanding debt on the balance sheet. Using the 10-year U.S. Treasury Bond yield of 4.79%, a risk
premium of 6% and a beta of 0.80 my calculation yielded a discount rate of 9.59%.

Terminal Value

We forecasted terminal value using a terminal growth rate of 5%. After adding the present values of
the FCFF and the Terminal value, and subtracting non-current outstanding liabilities, we arrived at a
total value of equity of $1,292,079,000. We divided this number by the number of shares outstanding
in order to come up with the present value of the price per share of $26.50.


                                         Analyst Coverage


      Firm Name                  Analyst        Recommendation         Target Px      Last Update

Sidoti & Company LLC           David Gold               Buy                30          1/30/2007

      Matrix USA              Ivan Feinseth            Hold                             1/5/2007

    Lehman Brothers         Jeffrey T Kessler     Equalwt/Neutral          23         12/14/2006




                                                                                                         16
                                      Investor Relations:

Unfortunately we have been unsuccessful in contacting investor relations. We do though have some
inquiries about the company and will keep trying to contact ABM Investor Relations. If indeed we are
successful, an addendum will be passed on to fellow Fund Managers on Thursday before voting.



                                           Conclusion:


In retrospect, we believe ABM Industries to be a solid company with a strong presence in its industry
and in its five business segments. They have also been profitably consistent and have potential for
future earnings going foreword. ABM also has a very positive outlook in 2007. They have little risk
financially due to having no L-T debt and possess strong financial ratios. Our multiple valuations show
that currently ABM Industries is undervalued in all four valuations; P/E, P/B, P/S, and P/CF. These
results have prompted us to recommend a buy for ABM Industries. Our DCF analysis though shows
ABM is undervalued, but only slightly. This along with weak net profit margins have prompted us to
recommend the buy, but only on a half position of 1,000 shares, because we believe we should wait
and see if ABM is indeed able to lower costs, thus increasing their margins.




                  Recommendation: Buy/half position:
                           1,000 shares




                                                                                                    17
                                             ABM Industries Incorporated
                                              Consolidated Balance Sheet
                                                    Years ended October 31,
                                                (in thousands, except share data)
                                                                                                                    2006          2005
Assets
Cash and cash equivalents                                                                                  $     134,001 $       56,793
Trade accounts recievables (less allowances of $8,041 and $7,932                                                 383,977        345,104
Inventories                                                                                                       22,783         21,280
Deferred income taxes                                                                                             43,945         46,795
Prepaid expenses and other current assets                                                                         47,035         44,690
Prepaid income taxes                                                                                                 -            6,791
    Total current assets                                                                                         631,741        521,453
Investments and long-term recievables                                                                             14,097         12,955
Property, plant and equipment (less accumulated depreciation of $86,837and $80370                                 32,185         34,270
Goodwill (less accumulated amortization of $67,557                                                               247,888        243,559
Other intangibles (less accumulated amortization of $15,550 and $13,478                                           23,881         24,463
Deferred income taxes                                                                                             42,120         46,426
Other assets                                                                                                      24,362         20,584
    Total assets                                                                                           $   1,016,274 $      903,710

Liabilities
Trade accounts payable                                                                                        $    66,336 $     47,605
Income taxes payable                                                                                               36,712        2,349
Accrued liabilities
   Compensation                                                                                                    78,673       72,034
   Taxes-other than income                                                                                         20,587       18,832
   Insurance claims                                                                                                66,364       71,455
   Other                                                                                                           50,613       62,799
     Total current liabilities                                                                                    319,285     275,074
Stockholders' equity
Preferred stock, $0.01 par value; 500,000 shares authorized; none issued                                              -            -
                                                                                                                      557          547
Common stock, $0.01 par value; 100,000,000 shares authorized; 55,663,472 & 54,650,514 shares issued at Oct 31, 2006 & 2005, respectively
Additional paid-in capital                                                                                        225,796     206,369
Accumulated other comprehensive income (loss)                                                                         149          (68)
Retained earnings                                                                                                 437,083     365,455
Cost of treasury stock (7,028,500 and 5,600,000 shares at October 31, 2006 and October 31, 2005, respectively   (122,338)     (96,377)
     Total stockholders' equity                                                                                   541,247     475,926




                                                                                                                           18
                    ABM Industries Incorporated
                   Consolidated Income Statement

                          Years ended October 31,
                    (in thousands, except per share data)
                                                      2006       2005       2004        2003        2002
                                                   10/31/06   10/31/05   10/31/04    10/31/03    10/31/02
                     In Millions of U.S. Dollars                         Restated    Restated    Restated
                  (except for per share items)                            10/31/05    10/31/05    10/31/04


                                      Revenue        2,713      2,587      2,375       2,222       2,068
                        Other Revenue, Total            80          1           0           0          10
                                Total Revenue        2,793      2,588      2,375       2,222       2,078

                       Cost of Revenue, Total        2,422      2,313      2,158       2,008       1,858
          Sell/General/Admin. Expenses,Total           207        204        167         160         156
                    Depreciation/Amortization            6          6           5           2           1
           Interest/Expense (In),Net Operating           0          1           1           1           1
                     Total Operating Expense         2,635      2,523      2,330       2,170       2,017

                            Operating Income           158         64          45          52          61

                    Net Income Before Taxes            158         64          45          52          61

                   Provision for Income Taxes           65         21          15          17          20
                      Net Income After Taxes            93         44          30          35          42

               Net Income Before Extra. Items           93         44          30          35          42

                     Total Extraordinary Items           0         14           1          56           3

                                   Net Income           93         58          30          91          44

                   Total Adjust to Net Income            --         --          --          --          0
Income Available to Common Excl. Extra. Items           93         44          30          35          42
Income Available to Common Incl. Extra. Items           93         58          30          91          44

      Basic/Primary Weighted Average Shares             49         49          49          49          49
         Basic/Primary EPS Excl. Extra. Items        1.900      0.883      0.609       0.705       0.849




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