AdvanSix Inc.

ASIX Details

AdvanSix Inc. (NYSE: ASIX) is an integrated producer of fertilizers and the polymer resin Nylon 6. Customers utilize nylon six as a synthetic material to make engineered plastics, fibres, filaments, and films, which are then used to create end goods, including carpets, sportswear, fishing nets, food packaging, and industrial and automotive components. It also offers a range of other goods, such as caprolactam, fertilizers made of ammonium sulphate, and other chemical intermediates. Geographically, It works throughout the United States, and its business is also growing elsewhere.

Latest Developments

• Completed Acquisition of U.S. Amines: In Q1FY22 ended March 31, 2022, the company closed acquisition of U.S. Amines, a leading North American producer of high-value intermediates used in agrochemicals, pharmaceuticals, and other applications for an estimated net purchase price of ~US 98 million.
• Stock Buy Back: In the quarter just gone by the company repurchased 181,536 shares at an average share price of USD 38.61 for approximately USD 7 million.

Financial Highlights: Q1FY22

Source: Company Presentation 

• Solid topline performance: During the Q1FY22, the company reported strong topline performance on a YoY basis, with sales surged by 27% to USD 479 million, on the back of 26% jump in favorable impact of market-based pricing, 3% higher raw material pass-through pricing, and 2% contribution from acquisitions, partially offset by 4% lower volume.
• Strong operating performance: During the quarter under consideration, the company’s Adjusted EBITDA was of USD 103.2 million, an increase of USD 45.6 million on a YoY basis. Adjusted EBIDTA margin stood at 21.5%, a jump of 620bps on a YoY basis.
• Increase in Capex: In Q1FY22, the company’s Capex stood at USD 21.0 million, an increase of USD 6.8 million from the same quarter of the previous financial year.

Key Risks:

• Hike in Natural Gas and Sulphur Prices: The company's financials will be directly impacted by the global increase in natural gas and Sulphur prices. Additionally, the facility was completely shut down because of a fire at the Freeport LNG natural gas liquefaction plant in South Texas on June 8, 2022. It will result in a 2 billion cubic foot per day reduction in the entire U.S. LNG export capacity.

• Competition Risk: AdvanSix faces competition from integrated manufacturers and fierce rivalry from DOMO Chemicals GmbH, LANXESS AG, BASF Corporation, Ube Industries Ltd., and Highsun Group Holdings Ltd. in each of the key product categories.
  

Outlook:

Well Positioned to Deliver Sustainable Performance and Attractive Returns Over Long-Term.

(Source: Company Filings)

Valuation Methodology: E.V./Sales Multiple Based Relative Valuation:

Source: REFINITIV, Analysis: Kalkine Group

Stock Recommendation:

ASIX delivered robust Q1FY22 to start FY22, delivering both sequential and YoY top and bottom-line growth. Company’s collective organization contributed to achieving record sales, earnings and margins in the quarter reflecting the advantage of their diverse portfolio, as well as disciplined execution to serve its key customers and meet strong end market demand amid a tightened supply environment

Currently, the ASIX is trading towards the low end of its 52-week trading range of USD 57.10 to USD 27.54. On weekly price chart, ASIX shares are forming a Double-Bottom pattern, a pullback is expected from the current level. Further, on weekly chart stock is hovering near the lower band of the Bollinger Band©, indicates that a pullback is possible from the current levels. However, long-term trend is bearish, but the stock is hovering near strong demand zone.

Considering the robust top-line and Bottom-line performance, positive outlook, industry above margins, higher ROE, associated risks, technical pattern, and current valuation. We recommend a "Speculative Buy" rating on the stock at the current price of USD 32.80 as of June 22, 2022, at 06:55 AM PDT.

1-year technical chart as of June 22, 2022, at 06:55 AM PDT. Source: REFINITIV. Analysis by Kalkine group

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.