Huntsman Corporation: On A Hunt

We Are

It has been a very agelong play of clip since I past looked astatine shares of Huntsman Corporation (NYSE:HUN). In fact, it has been each nan measurement backmost to 2014, erstwhile I concluded that nan latest disappointment added to a mediocre semipermanent way record, arsenic a existent modulation has taken spot ever since, creating a full different setup today.

A Quick Look Back

Late successful 2014, Huntsman Corporation closed 30% of its capacity successful nan European dioxide pigment business, which near maine concluding that guardant net were not realistic anymore. The latest closing added to a way grounds which has been filled pinch occasional disappointments.

Worrisome is that nan institution only acquired these activities (and immoderate more) successful September 2013, erstwhile it paid $1.1 cardinal for these activities, targeting immense costs savings arsenic well. Worrisome is that nan dioxides did not conscionable suffer from a cyclical pullback, arsenic request appeared to beryllium nether structural unit astatine nan time. These activities made up astir 10% of Huntsman's income backmost successful nan day, which measured astir $11 billion.

Huntsman posted EBITDA of $1.4 billion, pinch adjusted net reported astatine conscionable complete $2 per share. The institution guided for EBITDA to amended towards $2 cardinal successful a fewer years down nan road, successful which lawsuit net could emergence toward nan $4 per stock mark.

A betterment successful net was severely needed, pinch nett indebtedness reported astatine $3.4 billion, which made leverage connected nan precocious side, but surely manageable. The resulting 2.5 times leverage ratio should travel down a batch if nan institution could execute $2 cardinal successful EBITDA, but I really doubted that. With a 4th of a cardinal shares trading astatine $23 per share, equity was weighted astatine $5.7 billion, and nan full business astatine $9 billion, adjacent to astir 11 times adjusted earnings.

That said, I feared a accordant and ample spread betwixt some reported and adjusted earnings. Moreover, income person only grown from $9.5 cardinal to $11 cardinal successful a decade agelong period, arsenic maturation was simply not inspiring, which meant that nary worth was created for investors complete this play of time.

Rangebound

Since urging a cautious reside connected HUN banal astatine $23 successful 2014, shares of nan institution person traded successful a wide range. Shares fell to nan single-digit territory successful 2016, rallied to nan $30s successful 2017, fell backmost amidst nan pandemic earlier breaking retired again, peaked astatine $40 successful 2022, and now waste and acquisition astatine $31. The resulting 35% returns complete a near-decade agelong play are somewhat disappointing, fixed that nan marketplace astatine ample has done well, though Huntsman pays retired a reasonable dividend yield, now approaching 3%.

In nan meantime, nan institution made an effort to create a simpler and higher-value added portfolio, focusing heavy connected polyurethanes, precocious materials, capacity products and textiles. Forwarding to nan 3rd 4th of 2022, nan institution posted income of $8.5 cardinal connected a trailing basis, really having shrunken nan business since 2014. This comes arsenic nan institution announced $3.7 cardinal worthy of divestments complete nan past twelvemonth (since 2020), successful portion offset by astir $1.4 cardinal successful acquisitions being pursued during a akin play of time.

Consolidated EBITDA has been flattish astatine $1.4 billion, arsenic nan move to attraction connected higher-value added products made that adjusted EBITDA margins person improved to 16% of sales.

Polyurethanes is simply a $5.4 cardinal business posting double digit EBITDA margins successful a marketplace successful which nan institution competes against nan likes of Dow (DOW), Kingspan (OTCPK:KGSPF), BASF (OTCQX:BASFY) and Lanxess (OTCPK:LNXSF), among others. Products to deliberation of see insulation, adhesives, automotive, building materials and business markets.

This is complemented by 2 smaller segments. The $1.8 cardinal capacity products business is very profitable pinch margins posted successful nan high-twenties, pinch income derived from coatings, adhesives and additives. Advanced materials make $1.3 cardinal successful sales, though that this is simply a very profitable conception arsenic well, pinch EBITDA margins approaching 20% of sales.

If we look astatine nan 3rd 4th results, we spot that Huntsman has trim nett indebtedness to astir $1 billion. So not only has nan business been increasing margins and go a batch much predictable, leverage has travel down a batch arsenic well. To compensate investors for smaller income and flattish EBITDA complete nan past decade, nan institution has shrunken nan stock count to 199 cardinal shares, eliminating astir 1 successful each 5 shares outstanding since 2014.

The institution already announced nan income of its Textile business successful August 2022 successful a $718 cardinal deal, pinch Archroma ending up to beryllium nan purchaser of nan assets. Following this deal, nan institution would run conscionable 3 segments. The divested business generated $772 cardinal successful income and $94 cardinal successful EBITDA, arsenic nett rate proceeds from nan woody are apt coming successful 50 cardinal little pursuing anticipated taxes successful narration to nan deal.

Net proceeds for nan woody came successful astatine $540 million, arsenic nan woody closed successful February, arsenic nan original woody tag included underfunded pension liabilities arsenic well. Deal position bespeak a valuation astatine conscionable nether 1 times income and 7.6 times EBITDA, multiples which are really accretive to nan valuation of Huntsman itself.

And Now?

Reality is that I americium rather impressed pinch nan capacity of Huntsman Corporation, which has been connected a multi-year effort which progressive galore deals, some connected nan bargain and waste front. The institution has posted adjusted net astatine $3.03 per stock successful nan first 3 quarters of nan year, arsenic nan resulting $4 per stock tally complaint looks compelling successful narration to nan existent stock price, astatine conscionable 8 times net pinch leverage being very modest. That said, nan textile waste will apt impact immoderate net dilution arsenic well, though shares will still comfortably surpass nan $3 per stock mark.

The reality is that a successful translator seems to person been achieved. Moreover, leverage is almost non-existing, arsenic net aggregate person fallen a lot, pinch nan business having go a batch little cyclical than was nan lawsuit successful nan past. Given each of this, I really judge that Huntsman Corporation valuations look very compelling here, surely arsenic shares are down a 4th from past year´s highs.

Hence, Huntsman Corporation looks for illustration a very absorbing business here, arsenic undoubtedly nan strengthened balance sheet will beryllium utilized for further transformative and bolt-on deals successful nan twelvemonth to come. Given each this, shares look almost excessively inexpensive to ignore, arsenic Huntsman has deserved a salient position connected my watch database aft what appears to beryllium a successful transition, pinch entreaty looking imminent.

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