Innospec Offers More Upside On Growth And Margins

The last year or so has been a choppy one for Innospec (IOSP), as volumes and price/mix have been choppy across the business and the company absorbs the lower-margin business it acquired from Huntsman (HUN) at the end of December 2016. As far as peer comparisons go, Innospec is a tricky stock to benchmark given its mix of businesses, but I’d call its performance since October of 2016 “middle of the pack,” with companies like NewMarket (NEU) and Solvay (OTCPK:SOLVY) doing worse and companies like Ecolab (ECL), BASF (OTCQX:BASFY) and Lonza (OTCPK:LZAGY) doing better.

Looking ahead, I believe it will be quite a while before the electric vehicle revolution materially impacts the fuel specialties business, and I think the company has a long growth runway for its performance chemicals business. Its oilfield chemicals business should continue to benefit from improving U.S. onshore activity, while the octane additives business will continue to exist in a regulatory twilight zone.

If Innospec can generate mid-single-digit revenue growth and drive FCF margins back toward 10% on sustained improvements in the performance and oilfield chemical businesses, a fair value in the low-to-mid $70s seems reasonable and can support a long position today.

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Innospec Offers More Upside On Growth And Margins

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

Seeking Alpha: OCI Resources LP Not Really Cheap, But An Interesting MLP Nonetheless

MLPs have long offered a way for investors to generate tax-shielded income from underlying assets in various stages of the oil and gas industry - whether upstream E&P, midstream, or distribution. OCI Resources LP (OCIR) is a different sort of animal, though, as it is among a group of relatively rare MLPs based around mining and refining/processing assets - trona ore mining and soda ash production, to be specific. With its cost-advantaged position and long-lived asset base, OCI Resources LP should be able to generate years and years of distributable cash flow. The one hitch is that these units are not all that undervalued today, though a yield of over 8% is still appealing.

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OCI Resources LP Not Really Cheap, But An Interesting MLP Nonetheless