Three Quick Ideas

Chemicals and a slow liquidation

I was writing up Orion Engineering, but then I stumbled upon this really good write-up already on VIC (need a free account to read it). The tl;dr on this one is: 

• A chemical producer at a PE of 7x in an undersupplied market 

• 20% ROIC when new supply comes online

• For a PE of 7x, but only 3-4x if they hit their $500m EBITDA target by 2025

• With a very optimistic sounding CEO who recently bought >$2 million worth of shares

• 50% of EBITDA is in Specialty Black where they have 40% global market share by $ volume

• Other 50% is Rubber black, which is more of a commodity with only 10% global share, but transportation costs a large % of gross profit, so effective share higher

• Will enjoy sizable tailwinds from renewables and electric cars

So there if that sounds enticing, read the longer write up above. I bought some shares at an average of just under $17.

Then another interesting chemical producer is Celanese. Again a really great write-up on VIC. Some bullet points to wet your appetite:

• Low Cost chemical producer with 20% (soon to be 27%) market share globally

• 7.5x PE and 4x PE a few years out if they hit their targets and auto recovers

• 15-20% ROIC

• After merger with M&M will be extremely dominant variety of specialty chemicals

• Synergies in their previous acquisitions so far have been higher than expected

• Tailwind from electric car adoption and auto production recovering

• Warren Buffett bought a sizable stake earlier this year at higher prices

Debt will be a tad bit on the high side though. So this is a smaller position. But could be a potential homerun in the medium term.

Are you ready for some more bullet points? Because I also bought some Metrovacesa (MVC). A Spanish real estate developer in liquidation mode. Between 1.8bn to 3bn in liquidation value, depending on timing of cash flows. Against a 1bn market cap with no net debt.

What makes this interesting is that: 

• 70% of MVC shares are owned by 2 large Spanish banks who got their shares when their debt was converted to equity in bankruptcy years ago

• Dividend yield >10% because the company is in liquidation mode. Little new land is bought. So FCF > net profit

• 60% of market cap is in commercial land, which is non core and which will be sold in coming years 

• Carlos Slim, Mexico’s richest man, recently made a tender offer for 7.8 euro per share through one of his Spanish home builder companies. And only partially succeeded

• There also appears to be a housing shortage in Spain

So I can imagine that those two banks are going to want out at some point? With one of Slim’s real estate companies as potential suitors. And in the meantime you get a 10-15% dividend while you wait. Again a pretty solid in depth write-up on the stock exists.

The float is absolutely tiny though.

This seems like a low risk bet here. With the biggest risk being high interest rates. But at the same time, land and real estate is a pretty decent inflation hedge. If the price falls too much, I think another tender offer can be expected, so that plus the dividend puts a bottom in the share price here. So I own some shares here.

As always do your own due dilligence, and I may sell at any time.