Key Stats for Univar Inc
This is a "small" chemicals business! Wholesale...
| Ticker | UNVR |
|---|---|
| Sector | Commodity Chemicals Wholesale |
| Latest price | $28.73 |
| Value | $4,018M |
| Daily vol | $35M |
| Date | 03 February 2017 |
Useful Links
- Latest news from Google Finance and Yahoo Finance
- Latest results from SEC Edgar
- Website: http://www.univar.com/
Description
Univar Inc. is a distributor of commodity and specialty chemicals. Here's how they describe themselves
We are a leading global chemical distributor and provider of innovative value-added services. We source chemicals from over 8,000 producers worldwide and provide a comprehensive array of products and services to over 160,000 customer locations in over 150 countries.
The global chemical distribution industry is large, fragmented and growing, as producers and customers increasingly realize the benefits of outsourcing. Chemical producers rely on us to warehouse, transport and sell their products as a way to improve their market access, geographic reach, and lower their costs. Customers who purchase products and services from us benefit from a lower total cost of ownership, as they are able to simplify the chemical sourcing process and outsource a variety of functions such as packaging, inventory management, mixing, blending and formulating.
They point out that their top 10 suppliers (inc. Dow Chemical, Exxon, BASF) are 36% of their product sales & the top 10 clients represent 11% of sales (inc. Dow Chemical, Akzo Nobel; Henkel; Kelloggs, etc.). With the US equal to 60% of sales, then Europe is 20%.
So maybe they are to chemicals what McKesson is to pharma?
Recent financials
It's clearly not a high margin business!
| Metric | 2015A | 2014A | 2013A | 2012A | 2011A |
|---|---|---|---|---|---|
| Revenue | $9.0bn | $10.4bn | $10.3bn | $9.7bn | $9.7bn |
| Gross margin | 20% | 19% | 18% | 19% | 19% |
| Profit | $0.017bn | -$0.020bn | -$0.082bn | -$0.197bn | -$0.176bn |
| EPS | +$0.14 | -$0.20 | -$0.83 | -$2.01 | -$1.80 |
And a significant amount of debt is surely depressing earnings.
Competition
It's hard to come up with a competitor list, since so few people operate in this business. In fact the closest 2 are in Europe and only 1 in the states.
Chemical distribution itself is a fragmented market in which only a small number of competitors have substantial international operations. Our principal large international competitor is Brenntag, with a particularly strong position in Europe. Many other chemical distributors operate on a regional, national or local basis and may have a strong relationship with local producers and customers that may give them a competitive advantage in their local market.
It's far from a fair comparison but I've added the big producers into this table. Their sales, margins and returns must be the envy of the wholesalers!
| Companies | Latest Sales | Operating Profit | Return on Equity |
|---|---|---|---|
| Univar Inc | $8,228M | 6% | -1% |
| Wholesalers | |||
| Nexeo Solutions Inc | $3,500M | N/A | N/A |
| Brenntag AG | €10,346M | 8% | 15% |
| Imcd NV | €1,530M | 7% | 10% |
| Producers | |||
| LyondellBasell Industries NV | $28,507M | 21% | 58% |
| Praxair, Inc. | $10,534M | 32% | 32% |
| Air Products & Chemicals, Inc. | $9,051M | 33% | 19% |
| Celanese Corporation | $5,389M | 21% | 36% |
| Eastman Chemical Company | $9,008M | 23% | N/A |
| Albemarle Corporation | $2,911M | 29% | 18% |
Cash / Debt?
Univar Inc has $2,861M of net debt. That is 5.6x it's latest operating profit. Clearly the debt burden is one to flag.
Share sales
And if you are wondering why there is a lot of debt... well the business was a private equity roll-up. They IPOed at $22 a shares in June 2015, and more recently, sold stock at $19 in August 2016 and again at $29 a few days ago.
The Private Equity boys still own 25% of the company and 36m shares which is equal to 100+ days trading... i.e. there is a big overhang.
Wall Street thinks?
The professionals on Wall Street have a $28.88 for Univar Inc and their recommendation to clients is Buy. That implies an upside of 1% to their target. Hmmm... perhaps the brokers are keeping a close eye on this stock? Or are keeping quiet so as to not annoy the private equity boys.
Valuation
It doesn't feel like the stock is being valued off 2016 earnings of $0.67 but maybe a little more reasonable versus 2017 forecast of $0.92, though the stock's on 31x 2017... so still pricey on that forecast.
| View Peers | Valuation | Forecast PE | Long-term Growth | Dividend Yield | FCF Yield |
|---|---|---|---|---|---|
| UNVR.K | $4,018M | 43x | n/a | 0% | 6% |
| Wholesalers | |||||
| NXEOU.O | $813M | 16x | 16% | n/a | n/a |
| BNRGN.DE | €8,403M | 22x | 6% | 2% | 8% |
| IMCD.AS | €2,234M | 22x | 9% | 1% | 5% |
| Producers | |||||
| LYB | $38,205M | 10x | 1% | 4% | 16% |
| PX | $33,282M | 20x | 6% | 3% | 10% |
| APD | $30,306M | 23x | 0% | 3% | 10% |
| CE | $12,559M | 12x | 10% | 2% | 10% |
| EMN | $11,391M | 11x | 7% | 3% | 0% |
| ALB | $10,450M | 26x | 9% | 1% | 9% |
Dividends
Univar Inc is not forecast to pay a dividend this year. Not a surprise given the debt burden.
Catalysts?
In the last 3 months the stock price has moved by 29% that compares with no change in the earnings forecasts. However, that's against a backdrop of sales off 11% in the 9 months to Sept 2016 and some impairment charges. Let's blame oil and a strong dollar, eh?
On the management team's latest call with Wall Street brokers there was something odd... they started with
We have tremendous global scale. We're the number one chemical distributor in North America and number two in Europe. We can leverage our market presence and operating scale to provide value to all our constituents. We're in an industry where commercial fundamentals present the opportunity to deliver superior earnings growth.
And then said
However, particularly in the U.S., we have not been taking full advantage of these many strengths. Over the past few months, in discussions with several key customers and suppliers, I have confirmed that there are gaps in what our customers and suppliers expect from us and how we are executing.
Hmmm...
Perhaps a reversing oil price will lift their boat, but I don't see where the catalyst comes from. Plus I hate the overhang from private equity and that they spend their life talking about EBITDA not cashflow or returns. And wow is this a low returns business.
Can't see the attraction in it. Am I missing something?
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Disclosure: I have no position in any of the stocks mentioned. However I may initiate a position within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Reddit, moderators, and the author do not advise making investment decisions based on discussion in these posts. Analysis is not subject to validation and users take action at their own risk.
Author notes: u/shane_stockflare works at a financial website, Stockflare, and is a Chartered Financial Analyst.
Submitted February 03, 2017 at 03:50PM by shane_stockflare http://ift.tt/2k51Xde
