AdvanSix Inc.

AdvanSix Inc. (NYSE-ASIX) is a producer of Nylon 6, a polymer resin that is a synthetic material that is used by its customers to make fibers, filaments, engineered plastics, and films, which are then used in end-products like building and construction, fertilizers, plastics, solvents, packaging, paints, coatings, adhesives, and electronics. It also sells caprolactam, ammonium sulfate fertilizer acetone, and other intermediate chemicals, all of which are made in its integrated manufacturing value chain's unit activities.

*Company is expected to report its quarterly results on May 06, 2022.

Latest News

• Announcement of First Quarter Financial Results: AdvanSix Inc. stated on April 6, 2022, that its first-quarter financial results will be released before the New York Stock Exchange opens on Friday, May 6. On the same day, the firm will host an investor call to discuss the financial result for the quarter.
• Agreement to Acquire U.S. Amines: The Company will acquire U.S. Amines in an all-cash transaction for an expected net purchase price of approximately USD100 million, according to the terms of the agreement. The deal is scheduled to complete in the first quarter of 2022, subject to usual closing conditions, and will add to earnings in 2022.

FY21 Financial results

• Record top-line financials: Sales during the fiscal year of FY21 were USD 1.68 billion, up from USD 1.15 billion in the previous fiscal year. Sales are up over 45 percent year over year, thanks to a 20% favorable impact of market-based pricing, an 18% increase in raw material pass-through price, and a 7% increase in volume.
• Strong profitability financials: Net income was USD139.8 million, up USD93.7 million from the previous year. EBITDA was USD255.5 million, up to USD131.8 million from the previous year, resulting in an EBITDA margin of 15.2 percent, up 450 basis points. Earnings per share declined USD0.14 year over year, principally owing to a higher effective tax rate in the quarter over the prior year, which was more than offset by an approximately USD3.8 million energy tax credit connected with our natural gas boilers investment in the prior-year period.
• Dividend payments: The Board of Directors of the Company announced a quarterly cash dividend of USD0.125 per share on the Company's ordinary stock, which was paid on March 15, 2022, to shareholders of record as of March 1, 2022.

Key Risks

• Foreign exchange risk: Around 23% of total revenue is generated out of the USA for the company. So, FX risk exists in those payments as an appreciation of USD can lead to lower converted values.
• Competitive risk: AdvanSix competes with integrated manufacturers and has significant competition in each major product class with DOMO chemicals GmbH, LANXESS AG, BASF corporation, Ube industries ltd, and Highsun Group Holdings Ltd.
• Inflationary Pressure: Amid heightened inflationary pressure, the company could witness margin pressure as raw materials cost has gone up on the back of surge in energy prices because of Ukraine and Russia stand-off.

Outlook

In 2022, the company expects considerable profit growth, owing to predicted solid execution and strong ammonium sulfate fertilizer performance. In 2022, the pre-tax income effect of scheduled plant turnarounds is expected to be in the range of USD33 to USD38 million. Capital expenditures are expected to be between USD95 and USD105 million in 2022, depending on the scale of scheduled plant turnarounds and the timing of project implementation.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Source: REFINITIV, Analysis: Kalkine Group

Stock Recommendation

ASIX's stock price has fallen only 2.58% in the past six months and is currently leaning towards the upper side of its 52-week range of USD 27.22 to USD 57.10. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 59.76.

Considering the strong production results for last year, solid topline performance, positive outlook, and positive Q1FY22 result expectations, associated risks, and current valuation. We recommend a "Speculative Buy" rating on the stock at the closing price of USD 48.18 as of May 4, 2022.

One-year technical chart as of 4^th May 2022. Source: REFINITIV. Analysis by Kalkine group

 Technical Analysis Summary

* Closing price as of May 04, 2022.

 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.