H.B. Fuller Benefiting From Addressable Market Expansion

As the second-largest participant in the relatively fragmented adhesives market, there are certainly some positive characteristics to H.B. Fuller (NYSE:FUL). Fuller has historically been good at "sticking to its knitting" and focusing its resources on those markets where it had a strong position, and the company should be able to achieve meaningful operating margin improvements in the next few years from greater manufacturing and operating efficiency. Better still, the company's more recent turn towards engineered adhesives gives the company better exposure to some of the more attractive growth markets within adhesives.

Although Fuller's shares have lagged the local market performance of its major competitors (Henkel (OTCPK:HENKY), Sika (OTC:SXYAY), and Arkema (OTCPK:ARKAY)), it's hard to call the shares undervalued, as the price already seems to discount high single-digit/low double-digit growth in free cash flow and EBITDA. On the other hand, industry M&A has established a double-digit multiple on EBITDA as "reasonable" and H.B. Fuller's pivot toward faster-growing segments of the adhesives market could deliver better results than presently expected. On balance, I think Arkema is a more interesting pick today, but H.B. Fuller would be worth reconsideration on a pullback.

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H.B. Fuller Benefiting From Addressable Market Expansion

A Growing Specialty Mix And Improving Acrylics Bode Well For Arkema

France's Arkema (OTCPK:ARKAY) (AKE.PA) is far from unusual in trying to shift away from commodity chemical businesses in favor of specialty businesses with higher margins and less competition, but the company has nevertheless done a good job of making that shift. I believe that at least 70% of the company's earnings can now legitimately be said to come from specialty businesses, and it has the opportunity to buy its way toward an even richer mix.

In addition to the better growth and margin potential of specialty businesses like adhesives and sealants, Arkema's commodity acrylics business could be looking at a cyclical improvement in the coming years. Looking at the cash flow potential of the business, the shares look as though they could be 5% to 10% undervalued, which I believe is enough in this market to merit a closer look. I would note that Arkema's U.S. ADRs aren't as liquid as an investor might like though, and so I'd suggest at least considering the Euronext-listed shares.

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A Growing Specialty Mix And Improving Acrylics Bode Well For Arkema

Seeking Alpha: Rockwood Is Lean And Mean, But Not Overlooked

After a series of deals, Rockwood Holdings (ROC) management now has the business it says it wanted. In agreeing to sell the ceramics, clay-based additives, and pigments businesses, Rockwood is not only about to be flush with cash, but a company highly focused on and committed to its lithium and surface treatment businesses.

That's perfectly fine with me, as I think there are solid reasons to expect good growth in lithium demand and I believe Rockwood can put surplus capital to work expanding the surface treatment operations through select/precision acquisitions. What's not so fine with me is the valuation. I get that many investors are enamored of what electric vehicle adoption could mean for future lithium demand, but I'm not as excited about an opportunity where I have to pay more than 10x EBITDA just to get today's valuation on the shares.

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Rockwood Is Lean And Mean, But Not Overlooked

Seeking Alpha: Investors Seem To Be Expecting Too Much From H.B. Fuller

I love a good industrial story, particularly when companies can spike improving volumes and mix with better manufacturing margins. Along those same lines, I'm broadly a fan of companies whose products show up almost everywhere but don't necessarily capture much investor "mind-share". All of that said, I can't bring myself to love H.B. Fuller (FUL). I do understand that this specialty chemicals company can benefit from significant margin improvement initiatives and recoveries in key end markets like construction, but the valuation seems to be more than generous for that potential.

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Investors Seem To Be Expecting Too Much From H.B. Fuller

Seeking Alpha: Procter & Gamble's Problems Go Beyond Costs

Despite the shared obsession between corporate executives and Wall Street over cost-cutting, costs are not necessarily Procter & Gamble's (PG) biggest problem today. Instead, the company may be paying the price for getting too aggressive on price and too lackadaisical on product innovation. With rivals like Unilever (UL) and Colgate (CL) showing more in-store momentum, P&G investors may want to prepare themselves for a few more quarters of unimpressive earnings reports.

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Procter & Gamble's Problems Go Beyond Costs

Investopedia: Icahn Puts Clorox In The Spin Cycle

Love him or hate him, Carl Icahn makes the world a more interesting place. Who else but Icahn would launch a multi-billion dollar bid for a company he likes while hoping that the bid ultimately fails? And yet, that is what is happening now with Clorox (NYSE:CLX), as Icahn apparently hopes to stimulate a superior bid from a larger consumer goods company. 


The Deal That May Be
Icahn (through Icahn Enterprises) has stepped up with a bid of $76.50 per share for the rest of Clorox (Icahn owns a little more than 9% of Clorox shares). That is a 12% premium to a stock that has been a pretty notable laggard versus the S&P 500 over the past two years (though an outperformer on the five year comparison).

If Clorox were to take this $10.2 billion deal, it would be at a valuation of about 10.6x trailing EBTIDA and less than two times forward sales - valuations that would still be below comparables like Procter & Gamble (NYSE:PG) and Colgate Palmolive (NYSE:CL). 



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Unilever's Yo-Yo Diet

It does not seem like it was all that long ago that Anglo-Dutch consumer products giant Unilever (NYSE:UL) (NYSE:UN) was slimming down, centralizing and cutting its product portfolio. Nevertheless, Unilever has decided that it is time to get a little bigger again, and the company is buying Alberto-Culver (NYSE:ACV), a hair and skin care specialist, in an all-cash deal. 

The Terms 
Unilever is proposing to pay $3.7 billion in cash, or $37.50 per share. That is a rather healthy premium for Alberto-Culver. Even granting that the spin-off of Sally Beauty Holding (NYSE:SBH) makes past cash flow performance less predictive, investors have to make some rather exceptional profitability improvement assumptions to make Unilever's price seem sound. On the other hand, this deal will meaningfully expand Unilever's market share and there are solid reasons to think that Unilever's marketing machine will do more to grow Alberto-Culver's brands and international exposure than the company did on its own. 


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