AEP Industries AEPI
October 12, 2009 - 6:27pm EST by
gearl1818
2009 2010
Price: 37.57 EPS $5.99 $7.59
Shares Out. (in M): 7 P/E 6.2x 4.9x
Market Cap (in $M): 256 P/FCF 7.8x 4.5x
Net Debt (in $M): 161 EBIT 74 84
TEV ($): 417 TEV/EBIT 4.9x 3.5x

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Description

 

Company Description:

 

AEP Industries (AEPI US) is a leading manufacturer of plastic packaging films operated in the US. The company manufactures and markets an extensive and diverse line of polyethylene, polyvinyl chloride and polypropylene flexible packaging products, with consumer, industrial and agricultural applications. Their plastic packaging films are used in the packaging, transportation, beverage, food, automotive, pharmaceutical, chemical, electronics, construction, agriculture and textile industries. AEPI manufactures plastic films, principally from resins blended with other raw materials, which they either sell or further process by metalizing, printing, laminating, slitting or converting. While AEPI is exposed to both industry segments that have been significantly impacted by the economy (such as the home apparel and appliances industry), AEPI is also exposed to economically resilient sectors such as food packaging.

 

Long Thesis:

 

1.       Restructuring / consolidation to result in an improvement in industry competitive dynamics

a.       The plastic packaging films industry has been significantly impacted by the economic recession, and a number of operators have been driven into bankruptcy.

b.       With industry restructuring, there has been a number of consolidation M&A deals: specifically, Pliant Corporation is being taken out of Chapter 11 by Berry Plastic's Covalence subsidiary, and AEPI has taken Atlantis Plastics out of Chapter 11 in Oct-08.

c.       Sigma Plastics, the third largest operator in the industry has also contributed to the consolidation by buying majority stakes in two companies this year (FlexSol Packaging Corp, and ISO Poly Films). Sigma also purchased the assets of Santa Fe Extruders from its creditors.

d.       Specifically, in stretch film, with these consolidation moves, three companies now have around 70% of industry capacity (from 5 previously). This should help moderate pricing competition in the business. Berry Plastics / Pliant now has 26% market share, AEPI has 25%, and Sigma Plastics has 16%. 

 

 

2.       Acquisition of Atlantis Plastics a game changer for AEPI

a.       AEPI acquired Atlantis Plastics out of Chapter 11 in October 2008, at the height of the financial crisis. Prior to the acquisition of Atlantis, AEPI had annual production capacity of 750m lbs. Post the acquisition of Atlantis (300m lbs), AEPI now has more than 1bn lbs of capacity.

b.       Similar to the rest of the industry, Atlantis faced very difficult demand conditions due to the economy. At the same time, resin prices were increasing through 2008 (resin costs are derivatives of natural gas and oil) despite the weakening economy. These two factors combined to tip Atlantis into Chapter 11 given its debt load from a leveraged recap a few years ago.

c.       While the headline price for the acquisition was $99m, this included $10m of cash and $43m of positive working capital. Net of these adjustments, AEPI paid $46m for a company that previously achieved between $20m and $22m of EBITDA, pre-synergies, or under 2x EBITDA. AEPI also recorded negative goodwill for the transaction given the purchase price.

d.       AEPI has guided to $20m of synergies from the acquisition, mostly on plant rationalizations. Including synergies, AEPI paid slightly in excess of 1.0x normalized EBITDA of between $40m and $42m for Atlantis.

e.       Including Atlantis, the cost synergies and core AEPI earnings, the combined entity should have normalized EBITDA power of at least $125m per year when the economy recovers (which compares to $85m for pre-acquisition AEPI).

f.        Given the strong cash flow generation of the combined entity, AEPI has paid off the debt associated with the acquisition of Atlantis by Jul-09, reducing net debt from $250m at Oct-08 to $176m at Jul-09 (which compares with $173m at Jul-08). Essentially, AEPI has increased its core earnings power by 50% from the Atlantis acquisition while keeping its balance sheet unchanged.   

 

3.       Management team is shareholder friendly and good at allocating capital

a.       Management has shown itself to be very shareholder friendly. From Oct-06 to Oct-09, AEPI bought back 21% of its shares outstanding from its organic cash flow generation. It is expected that AEPI will restart its share buyback program sometime in the future. Earlier in the year, AEPI also bought back $14m of bonds at $9m, or $0.62 or so.

b.       AEPI management has shown itself to be good at allocating capital with the acquisition of Atlantis. One reason why AEPI was able to purchase Atlantis for the price it did was because the acquisition was announced at the height of the financial crisis.

c.       It is likely that AEPI management will also continue to acquire extremely cheap assets going forward that will be significantly cash flow accretive.

d.       Management owns in excess of 23% of the company. Given that CEO is currently 69 years old, it is logical that he might look to sell the company at some point in time in the future.

 

4.       Valuation is very supportive

a.       AEPI is currently trading at 5.6x Oct-09E EBITDA, and 3.5x FY Oct-10E EBITDA; or 7.8x Oct-09E Free Cash Flow (FCF), and 4.5x FY Oct-10E FCF.

b.       This is despite the fact that AEPI's EBITDA is toughing in FY09, and should improve from here. Obviously, the scale of the improvement is dependent on the speed of the economic recovery.

c.       However, it is worth noting that for the quarter ending Jul-09, AEPI reported EBITDA of $23m (or annualized EBITDA of $92m) despites volumes being 20% below plan due to the recession.

d.       While the company could continue to delever, if the company decides to use half of its FCF generation for the next fiscal year for share buybacks (and half for de-levering), the company could boost its FCF per share by 10%.

 

Current share price

 

 

 

 

 

37.23

FD Shares

 

 

 

 

 

 

6.87

Equity Value

 

 

 

 

 

255.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oct-06A

Oct-07A

Oct-08A

Oct-09E

Oct-10E

Oct-11E

LBs

 

727,937

660,988

659,887

774,416

853,098

917,081

Sales ($)

 

802.1

786.0

793.5

814.3

801.9

862.1

EBITDA

 

78.7

87.4

37.5

74.1

102.9

113.8

EBITDA per lb

10.8

13.2

5.7

9.6

12.1

12.4

Capex

 

-36.4

-15.6

-28.0

-21.4

-15.0

-14.0

Op CF

 

42.4

71.8

9.5

52.7

87.9

99.8

Interest

 

-16.5

-16.5

-15.7

-15.4

-10.6

-5.7

EPS

 

4.35

3.39

0.49

5.99

7.59

9.13

FCF

 

21.3

41.3

12.8

73.4

56.8

69.2

 -of which WC

-8.0

-14.7

16.1

40.8

0.0

0.0

FCF ex WC

29.3

56.0

-3.3

32.7

56.8

69.2

FCF ex WC per share

3.42

7.32

-0.49

4.75

8.18

9.87

Net Debt

 

 

 

248.9

160.9

104.1

34.9

FD Shares

 

8.56

7.65

6.77

6.87

6.94

7.01

 

 

 

 

 

 

 

 

Valuation

 

 

 

 

 

 

 

EV / EBITDA

 

 

13.5x

5.6x

3.5x

2.6x

EV / Op CF

 

 

 

53.3x

7.9x

4.1x

2.9x

PER

 

 

 

75.8x

6.2x

4.9x

4.1x

FCF Yield (inc WC)

 

 

5.0%

28.7%

22.2%

27.0%

FCF Yield (ex WC)

 

 

-1.3%

12.8%

22.2%

27.0%

Net Debt:EBITDA

 

 

6.6x

2.2x

1.0x

0.3x

 

Risks to Long Thesis:

 

1.       The economy continues to weaken - If the economy continues to weaken from here, it is likely that AEPI volumes could be weaker than is currently modeled.

 

2.       Volatility in input costs could hurt margins - Volatility in the price of resins could impact AEPI negatively. Violent movements up down in a short period of time makes it very difficult for the industry to pass on pricing increase / decreases.

 

Target Price:

 

On 6x EBITDA and 9x FCF, AEPI should be worth between $74 and $82 on a one-year view. Using those same multiples applied to FY11E, AEPI should be worth between $92 and $99. This compares with the current share price of $37.23, which suggests upside of between 100% and 120% on a one-year view and 150% and 160% on a two-year view.

 

To the extent that AEPI restarts its buyback program, there could be additional upside to these target prices.

 

Target Price based on EBITDA multiples

 

 

Oct-10E

Oct-11E

Oct-10E EBITDA

 

 

 

 

102.9

113.8

Target multiple

 

 

 

 

6.0x

6.0x

Target EV

 

 

 

 

 

617.5

682.7

Less: Net Debt

 

 

 

 

-104.1

-34.9

Implied Equity Value

 

 

 

 

513.4

647.8

FD Shares

 

 

 

 

 

6.94

7.01

Target Price

 

 

 

 

73.94

92.37

Current Price

 

 

 

 

37.23

37.23

Upside

 

 

 

 

 

99%

148%

 

 

 

 

 

 

 

 

Target Price based on FCF Yield

 

 

 

Oct-10E

Oct-11E

Oct-10E FCF ex WC

 

 

 

 

56.8

69.2

Target Yield

 

 

 

 

10%

10%

Implied Equity Value

 

 

 

 

568.2

691.9

FD Shares

 

 

 

 

 

6.94

7.01

Target Price

 

 

 

 

81.83

98.67

Current Price

 

 

 

 

37.23

37.23

Upside

 

 

 

 

 

120%

165%

 

 

Catalyst

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    Description

     

    Company Description:

     

    AEP Industries (AEPI US) is a leading manufacturer of plastic packaging films operated in the US. The company manufactures and markets an extensive and diverse line of polyethylene, polyvinyl chloride and polypropylene flexible packaging products, with consumer, industrial and agricultural applications. Their plastic packaging films are used in the packaging, transportation, beverage, food, automotive, pharmaceutical, chemical, electronics, construction, agriculture and textile industries. AEPI manufactures plastic films, principally from resins blended with other raw materials, which they either sell or further process by metalizing, printing, laminating, slitting or converting. While AEPI is exposed to both industry segments that have been significantly impacted by the economy (such as the home apparel and appliances industry), AEPI is also exposed to economically resilient sectors such as food packaging.

     

    Long Thesis:

     

    1.       Restructuring / consolidation to result in an improvement in industry competitive dynamics

    a.       The plastic packaging films industry has been significantly impacted by the economic recession, and a number of operators have been driven into bankruptcy.

    b.       With industry restructuring, there has been a number of consolidation M&A deals: specifically, Pliant Corporation is being taken out of Chapter 11 by Berry Plastic's Covalence subsidiary, and AEPI has taken Atlantis Plastics out of Chapter 11 in Oct-08.

    c.       Sigma Plastics, the third largest operator in the industry has also contributed to the consolidation by buying majority stakes in two companies this year (FlexSol Packaging Corp, and ISO Poly Films). Sigma also purchased the assets of Santa Fe Extruders from its creditors.

    d.       Specifically, in stretch film, with these consolidation moves, three companies now have around 70% of industry capacity (from 5 previously). This should help moderate pricing competition in the business. Berry Plastics / Pliant now has 26% market share, AEPI has 25%, and Sigma Plastics has 16%. 

     

     

    2.       Acquisition of Atlantis Plastics a game changer for AEPI

    a.       AEPI acquired Atlantis Plastics out of Chapter 11 in October 2008, at the height of the financial crisis. Prior to the acquisition of Atlantis, AEPI had annual production capacity of 750m lbs. Post the acquisition of Atlantis (300m lbs), AEPI now has more than 1bn lbs of capacity.

    b.       Similar to the rest of the industry, Atlantis faced very difficult demand conditions due to the economy. At the same time, resin prices were increasing through 2008 (resin costs are derivatives of natural gas and oil) despite the weakening economy. These two factors combined to tip Atlantis into Chapter 11 given its debt load from a leveraged recap a few years ago.

    c.       While the headline price for the acquisition was $99m, this included $10m of cash and $43m of positive working capital. Net of these adjustments, AEPI paid $46m for a company that previously achieved between $20m and $22m of EBITDA, pre-synergies, or under 2x EBITDA. AEPI also recorded negative goodwill for the transaction given the purchase price.

    d.       AEPI has guided to $20m of synergies from the acquisition, mostly on plant rationalizations. Including synergies, AEPI paid slightly in excess of 1.0x normalized EBITDA of between $40m and $42m for Atlantis.

    e.       Including Atlantis, the cost synergies and core AEPI earnings, the combined entity should have normalized EBITDA power of at least $125m per year when the economy recovers (which compares to $85m for pre-acquisition AEPI).

    f.        Given the strong cash flow generation of the combined entity, AEPI has paid off the debt associated with the acquisition of Atlantis by Jul-09, reducing net debt from $250m at Oct-08 to $176m at Jul-09 (which compares with $173m at Jul-08). Essentially, AEPI has increased its core earnings power by 50% from the Atlantis acquisition while keeping its balance sheet unchanged.   

     

    3.       Management team is shareholder friendly and good at allocating capital

    a.       Management has shown itself to be very shareholder friendly. From Oct-06 to Oct-09, AEPI bought back 21% of its shares outstanding from its organic cash flow generation. It is expected that AEPI will restart its share buyback program sometime in the future. Earlier in the year, AEPI also bought back $14m of bonds at $9m, or $0.62 or so.

    b.       AEPI management has shown itself to be good at allocating capital with the acquisition of Atlantis. One reason why AEPI was able to purchase Atlantis for the price it did was because the acquisition was announced at the height of the financial crisis.

    c.       It is likely that AEPI management will also continue to acquire extremely cheap assets going forward that will be significantly cash flow accretive.

    d.       Management owns in excess of 23% of the company. Given that CEO is currently 69 years old, it is logical that he might look to sell the company at some point in time in the future.

     

    4.       Valuation is very supportive

    a.       AEPI is currently trading at 5.6x Oct-09E EBITDA, and 3.5x FY Oct-10E EBITDA; or 7.8x Oct-09E Free Cash Flow (FCF), and 4.5x FY Oct-10E FCF.

    b.       This is despite the fact that AEPI's EBITDA is toughing in FY09, and should improve from here. Obviously, the scale of the improvement is dependent on the speed of the economic recovery.

    c.       However, it is worth noting that for the quarter ending Jul-09, AEPI reported EBITDA of $23m (or annualized EBITDA of $92m) despites volumes being 20% below plan due to the recession.

    d.       While the company could continue to delever, if the company decides to use half of its FCF generation for the next fiscal year for share buybacks (and half for de-levering), the company could boost its FCF per share by 10%.

     

    Current share price

     

     

     

     

     

    37.23

    FD Shares

     

     

     

     

     

     

    6.87

    Equity Value

     

     

     

     

     

    255.9

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Oct-06A

    Oct-07A

    Oct-08A

    Oct-09E

    Oct-10E

    Oct-11E

    LBs

     

    727,937

    660,988

    659,887

    774,416

    853,098

    917,081

    Sales ($)

     

    802.1

    786.0

    793.5

    814.3

    801.9

    862.1

    EBITDA

     

    78.7

    87.4

    37.5

    74.1

    102.9

    113.8

    EBITDA per lb

    10.8

    13.2

    5.7

    9.6

    12.1

    12.4

    Capex

     

    -36.4

    -15.6

    -28.0

    -21.4

    -15.0

    -14.0

    Op CF

     

    42.4

    71.8

    9.5

    52.7

    87.9

    99.8

    Interest

     

    -16.5

    -16.5

    -15.7

    -15.4

    -10.6

    -5.7

    EPS

     

    4.35

    3.39

    0.49

    5.99

    7.59

    9.13

    FCF

     

    21.3

    41.3

    12.8

    73.4

    56.8

    69.2

     -of which WC

    -8.0

    -14.7

    16.1

    40.8

    0.0

    0.0

    FCF ex WC

    29.3

    56.0

    -3.3

    32.7

    56.8

    69.2

    FCF ex WC per share

    3.42

    7.32

    -0.49

    4.75

    8.18

    9.87

    Net Debt

     

     

     

    248.9

    160.9

    104.1

    34.9

    FD Shares

     

    8.56

    7.65

    6.77

    6.87

    6.94

    7.01

     

     

     

     

     

     

     

     

    Valuation

     

     

     

     

     

     

     

    EV / EBITDA

     

     

    13.5x

    5.6x

    3.5x

    2.6x

    EV / Op CF

     

     

     

    53.3x

    7.9x

    4.1x

    2.9x

    PER

     

     

     

    75.8x

    6.2x

    4.9x

    4.1x

    FCF Yield (inc WC)

     

     

    5.0%

    28.7%

    22.2%

    27.0%

    FCF Yield (ex WC)

     

     

    -1.3%

    12.8%

    22.2%

    27.0%

    Net Debt:EBITDA

     

     

    6.6x

    2.2x

    1.0x

    0.3x

     

    Risks to Long Thesis:

     

    1.       The economy continues to weaken - If the economy continues to weaken from here, it is likely that AEPI volumes could be weaker than is currently modeled.

     

    2.       Volatility in input costs could hurt margins - Volatility in the price of resins could impact AEPI negatively. Violent movements up down in a short period of time makes it very difficult for the industry to pass on pricing increase / decreases.

     

    Target Price:

     

    On 6x EBITDA and 9x FCF, AEPI should be worth between $74 and $82 on a one-year view. Using those same multiples applied to FY11E, AEPI should be worth between $92 and $99. This compares with the current share price of $37.23, which suggests upside of between 100% and 120% on a one-year view and 150% and 160% on a two-year view.

     

    To the extent that AEPI restarts its buyback program, there could be additional upside to these target prices.

     

    Target Price based on EBITDA multiples

     

     

    Oct-10E

    Oct-11E

    Oct-10E EBITDA

     

     

     

     

    102.9

    113.8

    Target multiple

     

     

     

     

    6.0x

    6.0x

    Target EV

     

     

     

     

     

    617.5

    682.7

    Less: Net Debt

     

     

     

     

    -104.1

    -34.9

    Implied Equity Value

     

     

     

     

    513.4

    647.8

    FD Shares

     

     

     

     

     

    6.94

    7.01

    Target Price

     

     

     

     

    73.94

    92.37

    Current Price

     

     

     

     

    37.23

    37.23

    Upside

     

     

     

     

     

    99%

    148%

     

     

     

     

     

     

     

     

    Target Price based on FCF Yield

     

     

     

    Oct-10E

    Oct-11E

    Oct-10E FCF ex WC

     

     

     

     

    56.8

    69.2

    Target Yield

     

     

     

     

    10%

    10%

    Implied Equity Value

     

     

     

     

    568.2

    691.9

    FD Shares

     

     

     

     

     

    6.94

    7.01

    Target Price

     

     

     

     

    81.83

    98.67

    Current Price

     

     

     

     

    37.23

    37.23

    Upside

     

     

     

     

     

    120%

    165%

     

     

    Catalyst

    Messages


    Subjectnumbers
    Entry10/13/2009 12:41 PM
    Memberfinn520

    Thanks for the writeup.

     

    How did you come up with those Sales & EBITDA numbers for 2006-2008?  They do not seem to match the numbers from the 10-K, either for AEPI standalone or for a combination of AEPI and Atlantis.  LBs are the same, but other numbers are different.


    SubjectRE: numbers
    Entry10/13/2009 06:30 PM
    Membergearl1818

    The Sales and EBITDA numbers match up for 2006 to 2007 if you look at the respective annual 10Ks. However, AEPI sold its European business in Apr-08. The 2008 10-K shows the proforma numbers for 2006/2007/2008.

    The European business did $120m in sales and $3m in EBIT in FY07. This compares with total reported Sales of $725m and $54m in EBIT in the same year. This was a plant in Apeldoom in the Netherlands.

    The important thing to note, however, is that the European business was subscale, and so was dilutive to overall EBITDA per lb. Without the European drag, AEPI's EBITDA per lb would have been a little higher, excluding the impact of the European operations.

     

     


    Subjectcompetition
    Entry10/14/2009 01:26 PM
    Memberheffer504

    on the last call, mgmt said there was "huge excess capacity" even though the industry had been rationalized... any evidence that there is a change in the intensity of competition?


    SubjectRE: RE: numbers
    Entry10/14/2009 01:42 PM
    Memberfinn520

    Thanks.

    Minor point - It seems to me that you mixed-and-matched the LBs number.  2006 LBs of 727,937 is both Euro & U.S., 2007 LBs of 660,988 is just U.S, and 2008 LBs of 659,887 is just U.S.  The 2007 LBs for both Euro & U.S. is 766,379, which lowers EBITDA/LB to $0.114.

    Questions:

    1) Do you have any idea why Berry or Sigma didn't bid higher for the Atlantis assets?  If the price was so cheap and there are three decent sized players in the market, I would have expected more competitive bidding.  Perhaps it was a capital issue.

    2) Devil's advocate, assuming AEPI does roughly $103m EBITDA in 2010, call it $89m EBIT, that is pretax ROIC of roughly 30%, going to 34% in 2011.  I know the industry has consolidated, but is this really a 30% pretax ROIC business?  Or are they seeing some temporary windfall from falilng input costs that is going to ebb over the next few years?


    SubjectRE: RE: RE: numbers
    Entry10/14/2009 09:04 PM
    Membergearl1818

    1. Well, Apollo / Berry / Covalence was in for Pliant. That probably took it out of the equation. On Sigma, I'm not sure. However, you need to remember the climate that was Oct-09. I think it might be a function on whether financing was available.

    You also need to be aware that resin costs were going crazy between Jul-08 and Dec-08. A lot of players in stretch saw their margins got obliterated as resin costs spiked and then collapsed. I don't think that people were willing to take the risks that the world wasn't going to end.

    It was definitely a ballsy thing for AEPI to do. They called it right  and they are going to get rewarded for it.

     

    2. AEPI runs a spreads business really, so falling input costs shouldn't impact EBITDA per se. Also, I don't regard falling input costs as providing a temporary benefit. Look at 2009 so far - oil has gone up again (steadily), and I think that AEPI profitability will remain solid. Buying the capacity at Atlantis will obviously help that pre-tax ROIC number too. This is really not a very capital intensive business.

     


    SubjectUpdate on Berry / Pliant
    Entry10/14/2009 09:25 PM
    Membergearl1818

    2nd DRAFT - 10-8-09

    Berry Plastics announced today that it plans to acquire essentially all of Pliant's new equity after emergence. For background, Pliant is currently in Chapter 11(2nd time this decade), and Berry Plastics had previously injected its Covalence stretch business into Pliant for a 20% (another 5% on earnouts) stake in the equity of the restructured Pliant. The Covalence stretch is projected to do $10.4m of EBITDA this year.

     

    Putting the Covalence EBITDA of $10.4m at 5.5x (assumption). This suggests that Apollo / Berry valued 20% of the new Pliant at $10.4*5.5/20%, or $286m.

     

    A broker's note this morning suggested that Berry was looking to raise between $200m and $400m for the 80% of Pliant that it does not currently own.

     

    Working through the maths, it seems like on a blended basis, and running sensitivities between $200m and $400m for the 80% not owned, it seems like Apollo / Berry is valuing 100% of the equity of Pliant at between $257m and $457m. Including the projected net debt of $340m at restructured Pliant at 31-Dec-09, the implied Enterprise Value of the transaction is between $597m and $797m.

     

    Restructured Pliant is projected to generate $84.4m of EBITDA in FY09, with an additional $25m of costs to be taken out, for total FY09E EBITDA of $109.4m. Thus, Apollo / Berry is consummating the transaction at between 5.5x and 7.3x, with a midpoint of 6.4x, on somewhat depressed FY09 EBITDA.

     

    AEPI has a October year end, so their Q1 FY09 was for the quarter ending Jan-09. This was a disastrous quarter, as they did negative $0.4m of EBITDA. November and December were especially bad. On a more lfl basis, we think that for the twelve months ending Jan-10, AEPI will do $98.4m of EBITDA. Thus, at the current price, AEPI is only trading at 4.3x EBITDA (for year ending Jan-10).

     

    Current share price

    38.1

    FD Shares

    6.9

    Equity value

    262

    Net Debt as at 31-Oct-09E

    161

    Enterprise Value

    423

    EBITDA for 12 months ending Jan-10

    98.4

    EV / Dec-09E EBITDA

    4.3x

     

    This 4.3x compares with the Pliant mid-point takeout multiple of 6.4x.

    At 6.4x $98.4m of EBITDA, AEPI should have an Enterprise Value of $630m. Less projected net debt of $147m by 31-Jan-10, AEPI should have an equity value of $480m, or a target price of around $70.

     


    SubjectRE: competition
    Entry10/14/2009 09:27 PM
    Membergearl1818

    The industry has been in the process of rationalizing but its not a one step thing. More small guys will go away and there will be more consolidation. For example, the Sigma deal with Santa Fe. The real economy is still tough and volumes are still running 20% below capacity, but AEPI management is conservative in forecasting publicly.


    SubjectRE: RE: RE: RE: numbers
    Entry10/15/2009 11:02 AM
    Memberfinn520

    Thanks.

    I am wary of these "spread" businesses putting up record margins.  Almost all of the spread business I have looked at with oil-based raw materials have seen EBIT margins go through the roof in the past 6 months, many on big declines in volume & revenue.  For example,  OC's roofing business (which is a low-capital spread business, basically just buying oil and converting it into asphalt shingles) put up 34% EBIT margins in 2009 Q2.  Same with many specialty chemical players.  They claim that they are just recovering margin after years of a tough environment and they are going to fight to hold on, but I wonder how long that can last.

    This applies less directly to AEPI - your projected margins for 2010 & following aren't that much higher than 2007 & before, and maybe make sense in light of the industry consolidation.

    Anyway, interesting idea.


    SubjectRE: RE: RE: update
    Entry03/26/2010 04:29 PM
    Memberzzz007

    KSA (largest outside holder) has now been granted a board seat, so Khoshaba will be keeping an eye on things.  Should be an incremental positive.  I get to about 4.5x EBITDA, but am assuming about $80mm in EBITDA this year.  The real upside, though, is them getting utilization back up.  Currently only running at roughly 70% whereas could conceivably get back up to high 80s.  Lot of operating leverage if they do so.

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