With highway traffic still down meaningfully in the first quarter and oil/gas production activity likewise well off prior norms, it's not exactly business as usual for Innospec (IOSP), but the arrow is definitely pointing up.
As lockdown restrictions ease across the world and economic activity gets back to normal, I expect to see meaningful rebounds in the Fuel Specialties and Oilfield Chemicals businesses of Innospec. Meanwhile, the Performance Chemicals business never saw the same volume pressure, which makes sense given its leverage to personal care products like shampoos and laundry detergent.
Given Innospec's strong balance sheet, I fully expect management's attention to turn toward M&A in 2021, and I believe agriculture and mining may be areas of particular focus. The possibility of such M&A does create some modeling challenges, but with the rebound in the shares since my last update, I believe these shares are priced more as an attractive hold than a materially undervalued opportunity.
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