Albemarle Corporation

ALB Details

Albemarle Corporation (NYSE: ALB) is a manufacturer and marketer of specialty chemicals globally. ALB’s operating segments are 1) Lithium, which manufactures lithium compounds for use in batteries in consumer electronics and electric vehicles, 2) Bromine Specialties, which provides bromine-based products, that are used in fire safety solutions and other specialty chemicals applications, and 3) Catalysts, which deals in hydroprocessing catalysts (HPC), fluidized catalytic cracking (FCC) catalysts and additives, and performance catalyst solutions (PCS) which are used in various applications including oil refining. As of June 29, 2021, the company’s market capitalization stood at USD 19.47 billion.

Disposal of Fine Chemistry Services Business: On June 01, 2021, ALB completed the sale of its Fine Chemistry Services business to W.R. Grace & Co, for an aggregate price of USD 570 million. The selloff enabled ALB to derive significant value to enhance resources to execute its long-term growth strategy.

Q1FY21 Results: ALB reported total revenue of USD 829.29 million for Q1FY21 (ending March 31, 2021) compared to USD 738.85 million in Q1FY20, registering a growth of 12.24% YoY. The impact of the strong performance of the topline percolated down to the company's operating performance, wherein ALB reported an increment of 25.65% in its operating income to USD 155.86 million in Q1FY21 as compared to USD 124.04 million in Q1FY20. Operating expenses were down by USD 10.15 million in Q1FY21 as compared to Q1FY20 which resulted in an improvement of 2% in operating margin. The company reported a 10.75% drop in its net income to USD 95.68 million in Q1FY21 in contrast to USD 107.20 million in Q1FY20.  

Key Risks: Around 76% of ALB’s revenue was in foreign currencies in FY20, thus exposing ALB to exchange rate fluctuations. Further, it operates in a cyclical industry, a reduction in customer demand due to a downturn could hurt the company's financials. In addition, ALB operates through a number of joint ventures, conflict of interest between the joint venture partner and the company could have serious repercussions for the company.  

Outlook: In its Q1FY21 report, ALB stated that for FY21, it forecast revenue to be in the range of USD 3.2 - 3.3 billion with an adjusted EBITDA to the tune of USD 810 – 860 million. Riding on its measures to control cost, it anticipates achieving an EBITDA margin of 25% - 26% along with an EPS of USD 3.25 – 3.65 for FY21. ALB expects to generate USD 475 – 575 million cash flow from operation and spending USD 850 – 950 million as capital expenditure.

 Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

ALB Daily Technical Chart

Stock Recommendation: ALB stock has increased 15.46% and 12.91% in the past 3 and 6 months, respectively, and is currently leaning towards the higher band of the 52-week range of USD 73.20 to USD 188.35. The stock is currently trading just above its 50 and 200 DMA levels, and its RSI Index is 55.58. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 144.94. Considering the significant uptick in the stock price, we believe the current share price sufficiently reflects the robust business fundamentals and have chosen to remain on the sidelines. Therefore, we recommend an “Expensive” rating on the stock at the closing price of USD 169.05, up by 1.37% as of June 28, 2021.

* All forecasted figures and Industry Information have been taken from REFINITIV.

* The reference data in this report has been partly sourced from REFINITIV.

The Chemours Company

CC Details

The Chemours Company (NYSE: CC) is a global supplier of performance chemicals, it provides a wide range of specialty and industrial chemicals for various applications including plastics and coatings, refrigeration and air conditioning, electronics, mining, and oil refining. The company was created as a spin-off from DuPont in July 2015. CC’s operating segments are Titanium Technologies, Thermal and Specialized Solutions, Advanced Performance Materials, and Chemical Solutions. As of June 28, 2021, the company’s market capitalization stood at USD 5.78 billion.

Series of Leadership Changes: On June 3, 2021, the company announced that effective July 1, 2021, its current Chief Operating Officer (COO) Mark Newman will assume the responsibilities of Chief Executive Officer (CEO). The current CEO Mark Vergnano will become Chairman of the Board of Directors, while the current Chairman of the Board Richard H. Brown announced planned retirement.

Selected Refrigerant Solution Provider in North America: On May 27, 2021, CC’s Opteon XL41, was chosen by Johnson Controls as a sustainable refrigerant solution for the latter’s ducted residential and commercial heating, ventilation, and air conditioning (HVAC) products and air-cooled scroll chillers. CC’s refrigerant matches the minimum design modification and carbon dioxide emission reduction requirements of the HVAC industry.

Q1FY21 Results: CC reported total revenue of USD 1.44 billion for Q1FY21 (ending March 31, 2021) as compared to USD 1.31 billion in Q1FY20, registering a low double-digit growth of 10.04% YoY. The growth in the topline can be attributed to an increase in demand due to signs of recovery in all the segments. The gross margin declined by 216 bps to 20.68% in Q1FY21. CC reported YoY growth of 10.24% in its EBITDA, which stood at USD 323 million in Q1FY21 as compared to USD 293 million in Q1FY20. Net income for the company contracted by USD 4 million to USD 96 million in Q1FY21 as against USD 100 million in Q1FY20.

Key Risks:  CC conducts its business in many currencies other than USD, which makes it vulnerable to exchange rate fluctuations. Though it has taken currency forwards contract to mitigate the fluctuation in prices, still this risk persists. Any, unfavorable movement in the exchange rates would have an unfavorable impact on the financials of the company. In addition, CC requires a huge amount of raw material and energy to carry its production process, the costs of which are volatile and uncontrollable, thus exposing CC to input price risk.

Outlook: As of Q1FY21, the company expects EBITDA to be in the range of USD 1.10 – 1.25 billion for the full fiscal year. It also anticipates clocking EPS between USD 2.84 – 3.56, with a free cash flow of more than USD 450 million in FY21. 

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

CC Daily Technical Chart

Stock Recommendation: CC's share price has increased 21.20% and 32.42% in the past 3 and 9 months, respectively, and is currently leaning towards the higher band of the 52-week range of USD 14.32 to USD 38.87. The stock is currently trading just above its 50 and 200 DMA levels, and its RSI Index is 46.15. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 29.87. Considering the significant uptick in stock price, we believe the current share price sufficiently reflects the business fundamentals and have chosen to remain on the sidelines. Therefore, we recommend an “Expensive” rating on the stock at the closing price of USD 34.19, down by 2.06% as of June 28, 2021.

* All forecasted figures and Industry Information have been taken from REFINITIV.

* The reference data in this report has been partly sourced from REFINITIV.