Innospec Seeing A Hiccup In Margins, But The Core Business Looks On Track

Specialty chemical companies have continued to do alright this year, as volumes and pricing have helped partly offset increasing raw material pressures. Innospec (IOSP) has been a bit of a laggard since May, though, with the company’s second quarter report hurting the share price as investors didn’t like the weaker than expected margins in the business. I had thought Innospec looked a little pricey when I last wrote about the company, but I do see some upside here as I expect the company to benefit from some lagging pricing actions. If Innospec can get the Oilfield business in better shape, there could be more meaningful upside.

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Innospec Seeing A Hiccup In Margins, But The Core Business Looks On Track

Seeking Alpha: Innospec Muddling Through Better Than Most

Small specialty chemical company Innospec (NASDAQ:IOSP) continues to operate pretty strongly despite headwinds that would (and have) smacked other companies hard. Back in May of 2015, I thought the valuation was a little iffy and that it would be best to wait for a pullback; the shares did pull back into the low $40s in late summer before an impressive run to almost $60. Then the weight of weakness in the oilfield really hit the stock, sending the shares back down almost where we started from back in May of 2015.

It's probably too much to hope that Innospec sees its oilfield chemicals business return to growth this year, but the business has remained profitable and likely will stay so long as conditions don't worsen (another oil price pullback to old lows). Meanwhile, I think the fuel additives business will continue along while the performance chemical business grows nicely with strong volume growth driven by the personal care segment. With a clean balance sheet, and a stated desire to do more deals, I'm tempted to look past what will be a tough 2016 and pick at these shares now that they once again appear undervalued.

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Innospec Muddling Through Better Than Most

Seeking Alpha: BASF Has Lagged On A Relative Basis, But Excels On Its Own Merits

Chemical companies have been basking in some investor love, as companies like Dow Chemical (DOW), Wacker Chemie (OTC:WKCMY), Clariant (OTCPK:CLZNY), and DuPont (DD) have seen their shares rise from 26% to 53% over the past year. With that, the "fair" multiple on sales and EBITDA has risen more than 10% as investors bid up companies that are exposed to global growth and have succeeded in restructuring operations away from basic/commodity markets.

BASF (OTCQX:BASFY) is a tricky stock within that context. BASF is the largest chemical company in the world and a top player in numerous markets. The company also has above-average profitability despite a sizable ongoing commitment to R&D. Despite that, the shares have lagged, as the local shares (BAS.XTA) have risen less than 20% over the past year. Stretch out the comparisons to two or three years, though, and BASF's performance is much more competitive - suggesting that BASF was simply early in getting recognized for its qualities. BASF as a lot of positives from a qualitative standpoint, but it's tough to argue the shares are undervalued unless you believe that it's somehow "different this time" for chemical companies.

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BASF Has Lagged On A Relative Basis, But Excels On Its Own Merits