Argan Inc. (NYSE: AGX) $29.97

Argan Inc. (NYSE: AGX) $29.97

Table of Contents Recommendation Business Overview Safe Valuation Catalysts Negatives Questions

Recommendation Purchase Argan Inc. s equity at $30.00 This would provide a 38.6% discount to going concern value This price would make the shares trading bellow their P/B of 1.8x (excluding Costs/Billings in Excess).

Business Overview Argan, Inc. ("Argan") conducts operations through its wholly- owned subsidiaries Gemma Power Systems, LLC ("GPS") Southern Maryland Cable, Inc. ("SMC )

Gemma Power Systems Provides a full range of development, consulting, engineering, procurement, construction, commissioning, operations and maintenance services to the power generation and renewable energy markets. Accounted for 98% of revenue in most recent 10-Q 95% of revenues in 2013 (December 8, 2006) Acquired for $31.1 million, consisting of $10.9 million in cash and $20.2 million in common stock

Gemma Power Systems Projects Type of System Number of Projects Total MWs Average MWs per System Type Combined Cycle 10 5006 501 Peaking of Simple Cycle 13 4618 355 Pollution Control 2 1065 533 Ethanol 1 100 100 Bio-Diesel 3 250 83 Biomass 1 50 50 Wind 4 224 56 Solar 3 18 6

Gemma Power Systems Current Projects Panda Liberty LLC Panda Patriot Power Project Both 800 MW Combined Cycle All of backlog amount of $520 (10/31/2014) East Texas Electric Cooperative Inc. 49.9 MW Biomass-fired power plant (Completed 3 months early)

Southern Maryland Cable Provides inside premise wiring services to the federal government as part of the federal government commitment to Homeland Security improvements. Provides underground and aerial construction services and splicing to major telecommunications and utilities customers. Generated 6.2% and 6.6% of revenues in 2013 and 2012. (July 17th, 2003) Acquired for $4 million in cash, plus approximately $971,000 in debt. Argan suffered an impairment loss of $1,942,000 after making the acquisition

Management Executive Officers Name and Principal Position Fiscal Year Salary Earned Bonus Earned Stock Option All Other Awards Compensation Rainer H. Bosselmann 2014 $225,000.00 $200,000.00 $83,750.00 $1,200.00 Chief Executive Officer 2013 200,000 150,000 60,300 1,200 2012 200,000 125,000 49,000 1,200 Cynthia Flanders 2015* $225,000.00 $200,000.00 $67,000.00 $1,600.00 Senior Vice President, Chief Financial Officer and Corporate Secretary William F. Griffin, Jr 2014 $602,308.00 $2,500,000.00 $- $37,150.00 Vice Chairman and Chief 2013 600,000 900,000 65,900 18,000 Executive Officer, Gemma 2012 533,333 500,000-18,000 Daniel L. Martin 2014 $286,097.00 $500,000.00 $46,800.00 $37,150.00 President, Gemma 2013 282,653 425,000 76,950 16,500 2012 275,000 225,000 111,300 12,000 Bosselmann was CEO of Arguss, a telecommunica7on company from 1966 to 2002 before coming to Argan Inc. Arthur Trudel (former CFO) was replaced by Cynthia Flanders (Board Member) Trudel is going to stay and advise the CEO Cynthia Flanders had many different posi7ons within Bank of America from 1975 to 2009

Recent Events JP Morgan Asset Management Holdings reported to now owning 5.8% of the common outstanding Moxie Freedom Project (900 MW Natural Gas Plant) Loaned $6 million to Moxie for development Conditions are present for Gemma to do the EPC for project Projected start: 2016 (Panda Projects expected to be complete) Management and Boards have redeemed options. Increasing shares outstanding from 14,439,701 (Q2) to 14,529,201 (Q3) Their fiscal year ended January 31, 2015 (Have 75 days to file 10K)

Financials Income Statement (LTM) Revenue = $340.3 COGS = $257.7 Gross margin = 24.3% EBITDA margin = 19.3% Balance Sheet (7/31/2014)!(100)!!! PP&E = $5.6 million Total Assets = $414.4 million ($361 cash) Dollar!Amount!(Mil)!!400!!!300!!!200!!!100!!!0!! Cash!PosiAon! 2008! 2009! 2010! 2011! 2012! 2013! LTM! Cash! Fiscal!Year! Free!Cash!Flow!

Safe Argan has upside of $48.85 a share, on a going concern basis (Zero growth and 12% Cost of Equity) They have no debt Around $361 million in cash ($209.9 held by joint ventures) Management within Argan and Gemma Power Systems Gemma Management Name Position Years in Industry William F. Griffin Jr. CEO 37 Daniel L. Martin President 32 William G. Carter CDO 30+ Joel W. Canino Sr VP 25+ Bruce M. Davis Sr VP 35 John S. Gorzkow ski Jr. Sr VP 30 Ronald W. Polaske Sr VP 30+ Christopher J. Kollmer VP 30

Valuation According to our SDCF, Argan is currently trading at a 33% discount. At $30 it would be at a 38.6% discount LTM$(October$31,$2014) CAPEX&+&NWC $ 2.10 D&A $ 0.80 Sales $ 340.30 EBITDA $ 65.8 EBIT $ 65.00 Ajusted&LT&Debt $ - LT&Debt $ - Surplus&Cash $ 361.0 Mkt&Cap $ 469.1 EV $ 108.1 Interest $ - Annual&Rent $ - Capitalized&Leases $ - EBITDAR&Analysis? No (Ebitda&G&Capex)/EV 58.94% WACC Estimated(Multiple(based(on(Growth(and(Unlevered( cost(of(equity(assumptions(below EBITDA*x Multiple(for(n(periods(((((((Term(I) 2.24x PV(of(Terminal(Multiple(((Term(II) 3.04x Leverage(Multiple(((((((((((((Term(III) 0.00x Estimated0Multiple:0M_ed 5.28x Price(per(share(at(M_ed((GC): $ 23.96 Surplus(Cash(per(share((((RC): $ 24.90 Total(value(per(share $ 48.85 Discount((Premium) 33.8% Number0of0growth0years 5 Unlevered0cost0of0equity 12.00% Input0Growth0in0EBITDA 0.00%

Valuation On a public company comparable basis, AGX is trading slightly above its low of $27.38 Comparable Analysis EV#/#Revenues EV#/#EBITDA EV#/#EBIT P/E# MasTec, Inc. 0.6x 6.7x 10.5x 11.4x Primoris Services Corporation 0.7x 7.8x 11.0x 19.3x Chicago Bridge & Iron Company 0.5x 5.7x 6.8x 6.9x Argan#Inc. 0.4x 2.0x 2.0x 13.5x High 0.7x 7.8x 11.0x 19.3x Low 0.6x 6.7x 10.5x 11.4x Median 0.6x 7.2x 10.7x 12.5x Mean 0.5x 5.5x 7.6x 15.4x Share Price Based on Median Multiple $ 37.75 $ 50.00 $ 58.84 $ 27.38 High $ 58.84 Low $ 27.38 Current $ 31.61

Valuation Year Book value Dividends BV Growth BV+Div Growth BVPS BVPS Growth Argan Inc. BVPS + Div Growth Price/sh Share Price Growth Div/Sh Sh+Div Growth P/B Shares OUT 2007 41.9 $ - $ 3.8 $ 11.34 3.0x 11.4 2008 79.1 $ - 89% 89% $ 5.9 56.58% 57% $ 11.24-0.9% $ - -0.9% 1.9x 13.4 2009 88.4 $ - 12% 12% $ 6.5 10.11% 10% $ 14.20 26.3% $ - 26.3% 2.2x 13.6 2010 97.6 $ - 10% 10% $ 7.2 10.41% 10% $ 9.27-34.7% $ - -34.7% 1.3x 13.6 2011 101.3 $ 6.80 4% 11% $ 7.4 3.03% 10% $ 14.50 56.4% $ 0.50 61.8% 2.0x 13.7 2012 120.9 $ 8.40 19% 28% $ 8.6 16.79% 25% $ 18.80 29.7% $ 0.60 33.8% 2.2x 14 2013 156.3 $ 10.60 29% 38% $ 10.9 26.57% 35% $ 28.41 51.1% $ 0.74 55.1% 2.6x 14.3 Average 2.16x ACGR 14.59% 19.22% 13.11% 17.68% 20.38% 22.58% TR 97.60% 85.16% 152.76% 169.11% 2008 2009 2010 2011 2012 2013 EOY CE $ 79 $ 156 $ 60 $ 139 OIAIT $ 6 $ 10 $ 7 $ 24 $ 39 DIVs Paid in $ - $ - $ (7) $ (8) $ (11) #N/A Total Wealth Retained Wealth $ 86 GC $ 60 $ 17 RC $ 17 $ 103 TOTAL $ 77

Valuation Argan&Inc.&(Minus&Cost/Billings&in&Excess) Year Book(value Dividends BV(Growth BV+Div( BVPS( BVPS(+(Div( Share(Price(( Sh+Div( BVPS Price/sh Div/Sh Growth Growth Growth Growth Growth P/B Shares(OUT 2007 93.96 $((((((((( A $(((((((((( 3.8 $ 11.34 3.0x 11.4 2008 77.87 $((((((((( A -17% -17% $(((((((((( 5.8 54.14% 54% $ 11.24-0.9% $ - -0.9% 1.9x 13.4 2009 77.31 $((((((((( A -1% -1% $(((((((((( 5.7-2.18% -2% $ 14.20 26.3% $ - 26.3% 2.5x 13.6 2010 106.12 $((((((((( A 37% 37% $(((((((((( 7.8 37.27% 37% $ 9.27-34.7% $ - -34.7% 1.2x 13.6 2011 166.48 $(((((((( 6.80 57% 63% $(((((((( 12.2 55.73% 62% $ 14.50 56.4% $ 0.50 61.8% 1.2x 13.7 2012 193.08 $(((((((( 8.40 16% 21% $(((((((( 13.8 13.49% 18% $ 18.80 29.7% $ 0.60 33.8% 1.4x 14 2013 290.52 $(((((( 10.60 50% 56% $(((((((( 20.3 47.31% 53% $ 28.41 51.1% $ 0.74 55.1% 1.4x 14.3 Average 1.80x ACGR 30.12% 33.24% 28.44% 31.52% 20.38% 22.58% TR 273.08% 249.60% 152.76% 169.11% 2008 2009 2010 2011 2012 2013 EOY(CE $ 78 $ 291 $ 60 $ 138 OIAIT $ 6 $ 10 $ 7 $ 24 $ 39 DIVs(Paid(in $ - $ - $ (7) $ (8) $ (11) #N/A Total(Wealth Retained(Wealth $ 86 GC $ 60 $ 153 RC $ 153 $ 238 TOTAL $ 213 Costs and es7mated earnings in excess of billings Asset Billings in excess of costs and es7mated earnings Liability

Catalysts Panda Projects: 800MW combined cycle generating systems Accounts for $520 million of the company s backlog. Expected to be complete in middle and early 2016. Argan has paid special dividends: $.50, $.60, $.75 in 2011, 2012 and 2013. The recently announced a $.70 dividend payable to holders of record as of October 15 th. These dividends have provided a yield of around 2.00% Company Strategy: To make additional acquisitions and/or investments by identifying companies with significant potential for profitable growth. With so much cash on hand management can execute this strategy once prices start to deflate. Gemma Power System s Management New Moxie Freedom Project

Risks The company could go dark As of January 31, 2014 they only had 119 holders of record Company management and board members have an incentive to keep the company listed. The board and officer of the company own around 10.96% of the total dilutive shares outstanding. They do not hold quarterly calls on their earnings. Potentially dilutive company as they have issued shares to acquire companies. Southern Maryland Cable (SMC): 1,303,974 shares of common stock at $7.75 per share. Vitarich Laboratories (VLI): 825,000 shares and issued another 760,000 to pay Kevin Thomas, owner of VLI, on a subordinated note. Gemma Power Systems (GPS): 3,666,667 shares of common stock at $5.50 per share and issued 2,853,335 shares privately to raise the cash funds for the transaction. We believe they will slow down the issuing of shares for companies because the board and executives own 10.96% of shares outstanding.

Risks (cont.) Management s deal making ability: $5,810,000 impairment loss from Vitarich and another $1,942,000 impairment from Southern Maryland Cable Gemma is limited on the number of projects they can work on. Always have had a backlog of fewer than six projects. Their current backlog consists of two projects Both Panda Projects A new Financial Accounting Standard, ASU 2014-09 Argan will have to follow new revenue recognition standards Goes into effect December 15, 2016 There is one outstanding litigation against the company: Altra Matters a lawsuit that Gemma filed against ALTRA Nebraska to obtain money from the portion of the project that they completed before Altra went bankrupt. The lawsuit began in 2008 The lawsuit looks to be ending soon

Recommendation Purchase Argan Inc. s equity at $30.00 This would provide a 38.6% discount to going concern value This price would make the shares trading bellow their P/B of 1.8x (excluding Costs/Billings in Excess).