AdvanSix - Muddling Through

Spencer Platt

In September of past year, I concluded that shares of AdvanSix Inc. (NYSE:ASIX) were nary longer advancing, arsenic its shares had seen a reversal successful caller months contempt arguably beardown operating momentum. This was to be liked, though an net revision (to nan downside) was successful nan making, making it a spot tricky to get involved.

Recap

AdvanSix Inc. was spun disconnected from erstwhile genitor institution Honeywell International Inc. (HON) each nan measurement backmost successful 2016. The shaper of ammonium sulfates, nylon, and chemic intermediates was seen arsenic a commodity producer. Given a beardown relationship betwixt some input and output pricing, immoderate of that volatility was hedged, albeit that location was still important volatility witnessed connected nan bottommost line.

At nan time, AdvanSix was a $1.5 cardinal business which posted EBITDA of $200 cardinal and nett net to nan tune of astir a 100 million, pinch net powerfulness coming successful astatine $3 per share, pinch nan aforesaid shares trading astatine $40 per stock astatine nan time. Besides nan concerns connected cyclicality, I feared mediocre rate travel conversion (amidst a request to upgrade activities) and beardown margins posted already, arsenic good arsenic accrued attraction connected ESG practices to perchance wounded nan business successful nan agelong haul.

Facing an uphill battle, I concluded to not beryllium engaged pinch nan shares arsenic these shares drifted little to $15 up of nan pandemic, followed by a fierce rally to levels successful nan fifties successful 2021 and 2022.

This was driven by a recovery, arsenic 2021 income roseate to $1.7 cardinal connected which EBITDA of $255 cardinal and net of $140 cardinal were reported, pinch afloat twelvemonth net reported astatine $4.81 per share. In portion nan consequence of works turnarounds, 4th fourth net only came successful astatine $0.80 per share. With net trending betwixt $3 and $5 per stock and nett indebtedness down to $120 million, nan institution was successful a amended spot aft accommodation were upgraded to an important grade arsenic nan institution announced a $100 cardinal woody for US Amines arsenic well.

That said, 2022 was a tricky twelvemonth amidst awesome request for ammonium sulfate pinch parts of world nutrient proviso being endangered, albeit that higher power prices wounded nan business arsenic well. Since trading successful nan fifties earlier successful 2022, shares fell to $33 successful September, marking a very important pullback.

In nan meantime nan institution posted a 27% summation successful first 4th sales, connected which $103 cardinal successful EBITDA and nett net of $63 cardinal were reported, adjacent to $2.15 per share. Second 4th income roseate arsenic overmuch arsenic 33% to $584 million, pinch net up to $2.23 per share. Net indebtedness fell quickly fixed these beardown earnings. Trading astatine astir 4 times annualized earnings, it was clear that nan marketplace was not believing that these net could last, arsenic nan business was rather comfortable for maine to prosecute in.

Having initiated a mini position astatine $33, shares person now precocious to $43 astatine nan infinitesimal of writing, marking very decent gains of 30% complete nan clip framework of little than half a year.

Advancements Continues

In October, AdvanSix provided immoderate colour connected nan 3rd 4th results, indicating that much turnarounds were performed during nan 4th than antecedently was foreseen. This was evident successful nan 3rd 4th results which were released successful November, pinch income up 7% to $479 million, arsenic EBITDA was down a 4th to $33 million, pinch GAAP net only coming successful astatine $0.35 per share, and adjusted net only coming successful 8 cents higher. Net indebtedness was trim to 110 million, contempt nan mediocre profitability successful nan quarter.

Fortunately, nan institution guided for 4th fourth revenues to rebound to levels seen successful nan first 2 quarters of nan year. Full twelvemonth superior spending of $95 cardinal was group to transcend anticipated depreciation charges by astir $25 million.

As reported today, that anticipated betterment only partially came to fruition. Fourth 4th income of $404 cardinal were really down 5% connected nan twelvemonth before, pinch measurement declines posted astatine 15%, much than offsetting nan effect of pricing and acquisitions. EBITDA improved to $66 cardinal arsenic GAAP net came successful astatine $1.18 per stock pinch adjusted net coming successful 9 cents higher.

For nan year, AdvanSix Inc. posted $1.95 cardinal successful sales, $309 cardinal successful EBITDA and $172 cardinal successful nett earnings, pinch net reported astir $6 per share. Net indebtedness is down to $85 million, giving guidance capable assurance to denote different $75 cardinal buyback program. With immoderate 28 cardinal shares outstanding, and these shares trading astatine $43, nan marketplace worth comes successful astatine $1.2 billion, for astir an $1.3 cardinal endeavor valuation.

Upbeat Tone For 2023

For nan existent year, AdvanSix Inc. intends to use from semipermanent trends which thrust request for cultivation and fertilizer products, while expecting balanced acetone marketplace conditions successful North America. That is nan bully news, arsenic superior spending is seen astatine $110-$120 million, creating immoderate rate travel headwinds pinch depreciation charges reported astatine $70 cardinal successful 2022.

With net now trending astatine a wide $3-$5 per stock scope and nan balance sheet being strong, nan business remains rather stable, pinch shares trading successful nan debased forties. Amidst these observations, AdvanSix Inc. shares waste and acquisition astatine 10 times volatile earnings, arsenic nan business operates from a beardown financial position. That being said, nett superior investments to nan tune of $40-$50 cardinal wounded rate travel conversion by arsenic overmuch arsenic $2 per stock connected a pre-tax basis. This intends that it apt will person a immense effect connected anticipated net this year.

Given each of this, I americium very tempted to return immoderate profits connected AdvanSix Inc. here, looking to participate a position again if shares mightiness deed nan little thirties again this year.

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