ASHLAND INC ASH
August 01, 2011 - 5:27pm EST by
lewis530
2011 2012
Price: 61.00 EPS $3.36 $6.06
Shares Out. (in M): 80 P/E 18.2x 10.1x
Market Cap (in $M): 4,880 P/FCF 0.0x 7.7x
Net Debt (in $M): 3,100 EBIT 0 958
TEV ($): 8,003 TEV/EBIT 0.0x 8.4x

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Description

Ashland is in the early innings of getting credit for the conversion of its portfolio from commodity chemical to specialty chemical. The proposed transaction with International Specialty Products Inc. (ISP) is scheduled to close at the end of August and should be a catalyst for the stock. I think when ISP closes in August analysts will need to shift expectations from $5.20 to near $6.00 for fiscal 2012 (Sep FYE). The larger move occurs out in 2014 where current consensus is $7.20 and should drift up to $8.50-$9.00. Currently trading at $61, Ashland should do nearly $8.00, $9.00, and then $10.00 in Cash EPS for 2012, 2013, 2014 respectively.

Most analysts seem to be waiting for the closing to do real work on the transaction, as there is too wide a gap between potential outcomes. I believe the confusion comes around the 35c accretion target the company provided with the announcement of the ISP deal. This guidance was provided as accretion over and above doing a $400mm share repo. Doing simple math  in the scenario of LTM $360mm EBITDA and a 35% tax rate the ISP deal is 37c more accretive for Ashland to do than the planned share repo. The true GAAP EPS accretion assuming LTM ISP ($360mm of EBITDA) is closer to 68c.

There are two areas that I think will make this transaction materially more accretive to 2012 results than what the original commentary suggested. First while the LTM EBITDA of the ISP business is $360mm, the EBITDA in the first reported quarter of the year was $110mm. Ashland mentioned that they don't believe there is much seasonality, but haven't provided any guidance as to what their projected EBITDA is for ISP for 2011 or 2012. If we assume they can achieve the Q1 2011 run rate ($440mm) by their fiscal 2012 then the accretion is closer to $1.20 (page 3 has accretion scenarios with different EBITDA targets). Second, Ashland bases the accretion on a 500bps step up in the tax rate as they plan to repatriate all foreign earnings in order to pay down debt as soon as possible. While this is possible, I believe the most likely scenario would be to repatriate only the European earnings. Since Ashland is still investing growth capex into the emerging markets there is no reason to repatriate cash only to send it back for capex projects. Ashland alluded to this on the July Q3 2011 conference call. Repatriating only the European profits should increase the tax closer to 350bps. Assuming $440mm of EBITDA and a 33.5% tax ISP is $1.38 accretive to 2012 earnings.

Ashland is more interesting based on my 2013 numbers. The Company believes it will achieve $50mm of cost synergies between the two businesses (typically they do much more than what they originally project). The fact that ISP tried to buy Hercules in 2000 suggests that synergy between HPC and ISP could be substantial. To be conservative, I am assuming no growth in ISP EBITDA other than $50mm of synergy in 2013 (2012 EBITDA $440 + $50mm cost synergy = 2013 $490mm EBITDA) @ 33.5% tax rate the ISP transaction is $1.77 accretive.

Debt repayment will unlock another source of hidden value. Ashland did its last major acquisition (HPC) at the end of 2008, the worst possible time from a financing perspective. Ashland issued $650mm of 9.125% due in June 2017. That debt is callable on June 1st, 2013. I think Ashland can generate $1.3 billion in free cash by the call date. When they call that debt it is immediately 52 cents accretive to earnings. Ashland just placed $3 billion of debt at 3.8%. For the $3 billion of debt Ashland just raised they are going to pay $115mm of annual cash interest ($130mm including amortization); when they take out the $650mm they get rid of $60mm of interest expense. The expensive debt from the HPC deal is masking huge earnings power - approximately 10% accretion to where consensus is for 2012.

Since in my estimation they are going to generate $1.3 billion of free cash flow by 2013, I think the repatriation will be over in 2 years (by start of Fiscal 2014). Adjusting for the temporary tax noise of repatriation, the ISP deal is really $2.10-2.50 accretive to 2013. Adding the benefit of the $650mm bond takeout the math suggests $2.60 -$3.00 of pro forma 2013 accretion. I believe pro forma EPS will be $8.00 for 2013 as analysts reset their models.

To Summarize - I think there are several things that are not fully appreciated:

1) Repatriation should be over quicker than what people think, thus bringing the tax rate to a lower level sooner than what's expected. Based on the $1.3 billion of free cash flow that the company will generate over the next 2 years, Ashland should take Net Debt/Ebitda from 2.66x at the end of fiscal 2011 to 1.23x at the end of fiscal 2013. At that point, I think repatriation will be over and the GAAP tax rate should return to 30%

2) With all the amortization they have I get cash EPS of $7.90 in 2012, $8.70 in 2013, and $9.70 in 2014. Since Ashland has been an acquisitive company the amortization expense is massive. D&A will be much higher than Capex even after assuming aggressive growth projects. I cover the packaging space and one of the best performers in last 5 years have been CCK and BLL on huge cash flow. The enterprise value hasn't changed that much, but as the debt is paid down with the cash that they have generated the value transitions from the bond holders to the equity holders. Assuming nothing else you get $27 over 3 years with Ashland, nearly half of today's equity value.

3) They have $650mm of 9.125% debt that is callable June 1, 2013. Interest expense associated with this debt is masking 50c of real earnings. Assuming (a) normal growth in the businesses, (b) tax rate goes back to 30%, (c) they take out $650mm of high cost debt -- my fiscal 2014 EPS is ~ $9.00.

4) They are probably dreaming, but if you plug in their mid cycle targets along with the above you get $10.25. The only major difference is their Water and Performance targets which seem high.

5) It has been an amazing run for the commodity chemical guys, but as growth slows or demand declines, some of that pricing power should abate. Ashland has been on the other side of that pricing power and any end market demand softness will likely result in better margins for ASH providing a defensive attribute to the stock. Even stabilization of resin at current levels would be beneficial.

6) Ashland could be a takeout. The Valvoline business is more valuable in big oil hands, a structure deployed by its main competitors. A sale of Valvoline is tax prohibitive, but a spin-off of Valvoline could create real value as the remaining parts of Ashland are likely candidates to any larger player interested in enhancing its specialty mix. Separation of Valvoline would make it more likely that the market values Ashland as a specialty chemical company.

 

Attached Information:

1) ISP Accretion Math

2)  Consolidated Income Statement

3) EPS Walk

4) EV/Ebitda as Cash Flow Pays Down Debt

  

1) ASHLAND ISP ACCRETION MATH

Scenarios at Different Tax Rates

 

 

 

 

 

 

2010

2011

2012

2013

2014

ISP EBITDA

360

420

440

490

540

D&A

116

116

116

116

116

Ebit

244

304

324

374

424

Interest

130

130

130

130

130

Pre Tax

114

174

194

244

294

Tax @35%

40

61

68

85

103

Ash Increased Tax @.35

20

20

30

33

33

NI Increase

54

93

96

126

159

EPS @ 80mm shares

 $       0.68

 $      1.16

 $        1.20

 $      1.58

 $      1.98

Cash EPS

 $       1.25

 $      1.74

 $        1.78

 $      2.15

 $      2.56

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

2011

2012

2013

2014

ISP EBITDA

360

420

440

490

540

D&A

116

116

116

116

116

Ebit

244

304

324

374

424

Interest

130

130

130

130

130

Pre Tax

114

174

194

244

294

Tax @33.5%

38

58

65

82

98

Ash Increased Tax @.335

14

14

18

21

21

NI Increase

62

102

111

141

175

EPS @ 80mm shares

 $       0.77

 $      1.27

 $        1.38

 $      1.77

 $      2.18

Cash EPS

 $       1.35

 $      1.85

 $        1.96

 $      2.34

 $      2.76

 

 

 

 

 

 

 

2010

2011

2012

2013

2014

ISP EBITDA

360

420

440

490

540

D&A

116

116

116

116

116

Ebit

244

304

324

374

424

Interest

130

130

130

130

130

Pre Tax

114

174

194

244

294

Tax @30%

34

52

58

73

88

Ash Increased Tax @.30

0

0

0

0

0

NI Increase

80

122

136

171

206

EPS @ 80mm shares

 $       1.00

 $      1.52

 $        1.70

 $      2.14

 $      2.57

Cash EPS

 $       1.57

 $      2.10

 $        2.27

 $      2.71

 $      3.15

 

 

 

 

 

 

400mm share repo Accretion

 $       0.30

 $      0.30

 $        0.42

 

 

 

 

 

 

 

 

Gain Versus Share Repo

 $       0.37

 $      0.86

 $        0.78

 

 

 


2) ASHLAND CONSOLIDATED INCOME STATEMENT

 

 

2011

2012

2013

2013 Normalized**

Sales:

 

 

 

 

 

Performance Materials Sales

1,361

1,486

1,560

1,560

 

Aqualon Sales

2,786

3,041

3,193

3,193

 

Aqualon Core

1,074

1,175

1,234

1,234

 

Aqualon ISP

1,712

1,866

1,959

1,959

 

Valvoline Sales

1,696

2,173

2,216

2,216

 

Water Technologies Sales

1,909

1,981

2,080

2,080

 

Elims

-6

-16

0

0

 

Total Sales

7,746

8,666

9,050

9,050

 

 

 

 

 

 

 

YoY Sales Growth %

 

 

 

 

 

Performance Materials

 

9.2%

5.0%

0.0%

 

Aqualon

 

9.2%

5.0%

0.0%

 

Valvoline

 

28.1%

2.0%

0.0%

 

Water Technologies

 

3.8%

5.0%

0.0%

 

Total Sales Growth

 

11.9%

4.4%

0.0%

 

 

 

 

 

 

 

EBITDA:

 

 

 

 

 

Performance Materials EBITDA

119

131

139

139

 

Aqualon EBITDA

645

720

785

785

 

Aqualon Core

245

280

295

295

 

Aqualon ISP

400

440

490

490

 

Valvoline EBITDA

264

305

315

315

 

Water Technologies EBITDA

180

210

224

224

 

Pension Benefit

0

8

0

0

 

Elims

-43

-11

-11

-11

 

Total EBITDA

1,165

1,363

1,452

1,452

 

 

 

 

 

 

 

EBITDA Mgns:

 

 

 

 

 

Performance Materials

8.7%

8.8%

8.9%

8.9%

 

Aqualon

23.2%

23.7%

24.6%

24.6%

 

Aqualon Core

22.8%

23.8%

23.9%

23.9%

 

Aqualon ISP

23.4%

23.6%

25.0%

25.0%

 

Valvoline

15.6%

14.0%

14.2%

14.2%

 

Water Technologies

9.4%

10.6%

10.8%

10.8%

 

Total EBITDA Mgn

15.0%

15.7%

16.0%

16.0%

 

 

 

 

 

 

 

EBIT:

 

 

 

 

 

Performance Materials EBIT

50

62

70

70

 

Aqualon EBIT

434

504

569

569

 

Aqualon Core

150

180

195

195

 

Aqualon ISP

284

324

374

374

 

Valvoline EBIT

228

270

280

280

 

Water Technologies EBIT

95

125

139

139

 

Pension Benefit

0

8

8

8

 

Elims

-43

-11

-11

-11

 

Core

 

-3

 

 

 

Pension Realignment

 

-8

 

 

 

Total EBIT

764

958

1,055

1,055

 

 

 

 

 

 

 

Incremental Mgn:

 

 

 

 

 

Performance Materials

 

9.6%

10.8%

 

 

Aqualon

 

27.4%

42.7%

 

 

Aqualon Core

 

29.7%

25.5%

 

 

Aqualon ISP

 

26.0%

53.6%

 

 

Valvoline

 

8.8%

23.0%

 

 

Water Technologies

 

40.9%

15.0%

 

 

Incremental Mgn

 

21.0%

25.5%

 

 

 

 

 

 

 

 

Interest Expense

231

225

206

166

 

Core

101

95

76

36

 

ISP

130

130

130

130

 

 

 

 

 

 

 

Pre Tax

533

733

850

890

 

Tax

179

245

285

267

 

Tax Rate

33.5%

33.5%

33.5%

30.0%

 

 

 

 

 

 

 

Net Income

354

487

565

623

 

EPS

4.43

6.09

7.06

7.78

 

Shares

80

80

80

80

 

 

3) ASHLAND EPS WALK

2012 Walk

 

 

 

EPS Impact

Part 1- Deal changes from 2011 to 2012

 

 

 

 

(distribution sale & ISP)

 

 

 

 

 

 

 

 

 

1) 40mn of eliminations comes out

 

 

 

0.35

2) 8mm Pension Headwind in Elim offset in Core

 

 

0.00

3) +342mn of ISP EBIT

 

 

 

 $       1.38

4) Tax uptick to 33.5% versus guide of 35%

 

 

 

-

5) 130mm incremental interest from ISP

 

 

 

-

Part 1 Total

 

 

 

 $      1.73

 

 

 

 

 

Part 2- Business Segment improvement

 

 

 

 

1) Performance Materials

 

 

 

0.11

2) Aqualon

 

 

 

0.26

3) Valvoline

 

 

 

0.37

4) Water Tech

 

 

 

0.26

 

 

 

 

 

Part 2 Total

 

 

 

 $      0.99

 

 

 

 

 

Base 2011 EPS

 

 

 

 $      3.36

 

 

 

 

 

 

 

 

 

 

Projected 2012 EPS

 

 

 

 $      6.09

 

 

 

 

 

 

 

 

 

 

2013 Walk

 

 

 

 

1) 50mm benefit from ISP Synergy

 

 

 

0.42

2) ISP Incremental EBIT

 

 

 

0.00

3) Performance Incremental EBIT

 

 

 

0.07

4) Aqualon Core Incremental EBIT

 

 

 

0.12

5) Valvoline Incremental EBIT

 

 

 

0.08

6) Water Incremental EBIT

 

 

 

0.12

7) Interest Expense

 

 

 

0.16

Total

 

 

 

0.97

 

 

 

 

 

Projected 2013 EPS

 

 

 

7.06

 

 

 

 

 

1) Interest Expense Swing

 

 

 

0.33

2) Tax

 

 

 

0.39

Normalized 2013 EPS**

 

 

 

7.78

**2013 Adjusted- Assumes 2013 Sales and Margins with

 

 

Normalized 30% Tax rate and full Benefit of 650mm Bond

 

 

Take out

 

 

 

 

 

 

4) ASHLAND EV/EBITDA AS CASH FLOW PAYS DOWN DEBT

 

 

Sep

Sep

Sep

Sep

 

FY 11E

FY 12E

FY 13E

FY 14E

 

 

 

 

 

Cash

1,045.0

1,674.4

1,717.4

2,490.3

Debt

4,148.0

4,148.0

3,498.0

3,498.0

 

 

 

 

 

 

 

 

 

 

Cash EPS

 

 

 

 

Combined Ebitda

1,165.0

1,362.6

1,452.4

1,550.0

Less: Interest Expense

231

225

206

165.8

PreTax

533

733

850

1,012.0

Cash Tax (25%)

133

183

212

253

Less: Capex

285

325

341

358

Cash NI

476

629

693

773

Cash EPS

 $        5.9

 $        7.9

 $         8.7

 $          9.7

 

 

 

 

 

 

 

 

 

 

Consolidated Ebitda

1,165.0

1,362.6

1,452.4

1,452.4

 

 

 

 

 

Shares

80.0

80.0

80.0

80.0

Price

61.25

61.25

61.25

61.25

Mcap

4,900.0

4,900.0

4,900.0

4,900.0

Net Debt

3,103.0

2,473.6

1,780.6

1,007.7

EV

8,003.0

7,373.6

6,680.6

5,907.7

Net Debt/EBITDA

2.7x

1.8x

1.2x

0.7x

 

 

 

 

 

EV/EBITDA

6.9x

5.4x

4.6x

4.1x

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension Plus OPEB

4,378.0

 

 

 

Assets

3,025.0

 

 

 

Net Liability

1,353.0

 

 

 

 

 

 

 

 

After Tax

947.1

947.1

947.1

947.1

 

 

 

 

 

Pension Expense

100.0

100.0

100.0

100.0

Ebitdap

1,265.0

1,462.6

1,552.4

1,650.0

 

 

 

 

 

EV including Underfunded Pension

8,950.1

8,320.7

7,627.7

6,854.8

 

 

 

 

 

EV/Ebitdap

7.1x

5.7x

4.9x

4.2x

 

Catalyst

The proposed transaction with International Specialty Products Inc. (ISP) is scheduled to close at the end of August and should be a catalyst for the stock.
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    Description

    Ashland is in the early innings of getting credit for the conversion of its portfolio from commodity chemical to specialty chemical. The proposed transaction with International Specialty Products Inc. (ISP) is scheduled to close at the end of August and should be a catalyst for the stock. I think when ISP closes in August analysts will need to shift expectations from $5.20 to near $6.00 for fiscal 2012 (Sep FYE). The larger move occurs out in 2014 where current consensus is $7.20 and should drift up to $8.50-$9.00. Currently trading at $61, Ashland should do nearly $8.00, $9.00, and then $10.00 in Cash EPS for 2012, 2013, 2014 respectively.

    Most analysts seem to be waiting for the closing to do real work on the transaction, as there is too wide a gap between potential outcomes. I believe the confusion comes around the 35c accretion target the company provided with the announcement of the ISP deal. This guidance was provided as accretion over and above doing a $400mm share repo. Doing simple math  in the scenario of LTM $360mm EBITDA and a 35% tax rate the ISP deal is 37c more accretive for Ashland to do than the planned share repo. The true GAAP EPS accretion assuming LTM ISP ($360mm of EBITDA) is closer to 68c.

    There are two areas that I think will make this transaction materially more accretive to 2012 results than what the original commentary suggested. First while the LTM EBITDA of the ISP business is $360mm, the EBITDA in the first reported quarter of the year was $110mm. Ashland mentioned that they don't believe there is much seasonality, but haven't provided any guidance as to what their projected EBITDA is for ISP for 2011 or 2012. If we assume they can achieve the Q1 2011 run rate ($440mm) by their fiscal 2012 then the accretion is closer to $1.20 (page 3 has accretion scenarios with different EBITDA targets). Second, Ashland bases the accretion on a 500bps step up in the tax rate as they plan to repatriate all foreign earnings in order to pay down debt as soon as possible. While this is possible, I believe the most likely scenario would be to repatriate only the European earnings. Since Ashland is still investing growth capex into the emerging markets there is no reason to repatriate cash only to send it back for capex projects. Ashland alluded to this on the July Q3 2011 conference call. Repatriating only the European profits should increase the tax closer to 350bps. Assuming $440mm of EBITDA and a 33.5% tax ISP is $1.38 accretive to 2012 earnings.

    Ashland is more interesting based on my 2013 numbers. The Company believes it will achieve $50mm of cost synergies between the two businesses (typically they do much more than what they originally project). The fact that ISP tried to buy Hercules in 2000 suggests that synergy between HPC and ISP could be substantial. To be conservative, I am assuming no growth in ISP EBITDA other than $50mm of synergy in 2013 (2012 EBITDA $440 + $50mm cost synergy = 2013 $490mm EBITDA) @ 33.5% tax rate the ISP transaction is $1.77 accretive.

    Debt repayment will unlock another source of hidden value. Ashland did its last major acquisition (HPC) at the end of 2008, the worst possible time from a financing perspective. Ashland issued $650mm of 9.125% due in June 2017. That debt is callable on June 1st, 2013. I think Ashland can generate $1.3 billion in free cash by the call date. When they call that debt it is immediately 52 cents accretive to earnings. Ashland just placed $3 billion of debt at 3.8%. For the $3 billion of debt Ashland just raised they are going to pay $115mm of annual cash interest ($130mm including amortization); when they take out the $650mm they get rid of $60mm of interest expense. The expensive debt from the HPC deal is masking huge earnings power - approximately 10% accretion to where consensus is for 2012.

    Since in my estimation they are going to generate $1.3 billion of free cash flow by 2013, I think the repatriation will be over in 2 years (by start of Fiscal 2014). Adjusting for the temporary tax noise of repatriation, the ISP deal is really $2.10-2.50 accretive to 2013. Adding the benefit of the $650mm bond takeout the math suggests $2.60 -$3.00 of pro forma 2013 accretion. I believe pro forma EPS will be $8.00 for 2013 as analysts reset their models.

    To Summarize - I think there are several things that are not fully appreciated:

    1) Repatriation should be over quicker than what people think, thus bringing the tax rate to a lower level sooner than what's expected. Based on the $1.3 billion of free cash flow that the company will generate over the next 2 years, Ashland should take Net Debt/Ebitda from 2.66x at the end of fiscal 2011 to 1.23x at the end of fiscal 2013. At that point, I think repatriation will be over and the GAAP tax rate should return to 30%

    2) With all the amortization they have I get cash EPS of $7.90 in 2012, $8.70 in 2013, and $9.70 in 2014. Since Ashland has been an acquisitive company the amortization expense is massive. D&A will be much higher than Capex even after assuming aggressive growth projects. I cover the packaging space and one of the best performers in last 5 years have been CCK and BLL on huge cash flow. The enterprise value hasn't changed that much, but as the debt is paid down with the cash that they have generated the value transitions from the bond holders to the equity holders. Assuming nothing else you get $27 over 3 years with Ashland, nearly half of today's equity value.

    3) They have $650mm of 9.125% debt that is callable June 1, 2013. Interest expense associated with this debt is masking 50c of real earnings. Assuming (a) normal growth in the businesses, (b) tax rate goes back to 30%, (c) they take out $650mm of high cost debt -- my fiscal 2014 EPS is ~ $9.00.

    4) They are probably dreaming, but if you plug in their mid cycle targets along with the above you get $10.25. The only major difference is their Water and Performance targets which seem high.

    5) It has been an amazing run for the commodity chemical guys, but as growth slows or demand declines, some of that pricing power should abate. Ashland has been on the other side of that pricing power and any end market demand softness will likely result in better margins for ASH providing a defensive attribute to the stock. Even stabilization of resin at current levels would be beneficial.

    6) Ashland could be a takeout. The Valvoline business is more valuable in big oil hands, a structure deployed by its main competitors. A sale of Valvoline is tax prohibitive, but a spin-off of Valvoline could create real value as the remaining parts of Ashland are likely candidates to any larger player interested in enhancing its specialty mix. Separation of Valvoline would make it more likely that the market values Ashland as a specialty chemical company.

     

    Attached Information:

    1) ISP Accretion Math

    2)  Consolidated Income Statement

    3) EPS Walk

    4) EV/Ebitda as Cash Flow Pays Down Debt

      

    1) ASHLAND ISP ACCRETION MATH

    Scenarios at Different Tax Rates

     

     

     

     

     

     

    2010

    2011

    2012

    2013

    2014

    ISP EBITDA

    360

    420

    440

    490

    540

    D&A

    116

    116

    116

    116

    116

    Ebit

    244

    304

    324

    374

    424

    Interest

    130

    130

    130

    130

    130

    Pre Tax

    114

    174

    194

    244

    294

    Tax @35%

    40

    61

    68

    85

    103

    Ash Increased Tax @.35

    20

    20

    30

    33

    33

    NI Increase

    54

    93

    96

    126

    159

    EPS @ 80mm shares

     $       0.68

     $      1.16

     $        1.20

     $      1.58

     $      1.98

    Cash EPS

     $       1.25

     $      1.74

     $        1.78

     $      2.15

     $      2.56

     

     

     

     

     

     

     

     

     

     

     

     

     

    2010

    2011

    2012

    2013

    2014

    ISP EBITDA

    360

    420

    440

    490

    540

    D&A

    116

    116

    116

    116

    116

    Ebit

    244

    304

    324

    374

    424

    Interest

    130

    130

    130

    130

    130

    Pre Tax

    114

    174

    194

    244

    294

    Tax @33.5%

    38

    58

    65

    82

    98

    Ash Increased Tax @.335

    14

    14

    18

    21

    21

    NI Increase

    62

    102

    111

    141

    175

    EPS @ 80mm shares

     $       0.77

     $      1.27

     $        1.38

     $      1.77

     $      2.18

    Cash EPS

     $       1.35

     $      1.85

     $        1.96

     $      2.34

     $      2.76

     

     

     

     

     

     

     

    2010

    2011

    2012

    2013

    2014

    ISP EBITDA

    360

    420

    440

    490

    540

    D&A

    116

    116

    116

    116

    116

    Ebit

    244

    304

    324

    374

    424

    Interest

    130

    130

    130

    130

    130

    Pre Tax

    114

    174

    194

    244

    294

    Tax @30%

    34

    52

    58

    73

    88

    Ash Increased Tax @.30

    0

    0

    0

    0

    0

    NI Increase

    80

    122

    136

    171

    206

    EPS @ 80mm shares

     $       1.00

     $      1.52

     $        1.70

     $      2.14

     $      2.57

    Cash EPS

     $       1.57

     $      2.10

     $        2.27

     $      2.71

     $      3.15

     

     

     

     

     

     

    400mm share repo Accretion

     $       0.30

     $      0.30

     $        0.42

     

     

     

     

     

     

     

     

    Gain Versus Share Repo

     $       0.37

     $      0.86

     $        0.78

     

     

     


    2) ASHLAND CONSOLIDATED INCOME STATEMENT

     

     

    2011

    2012

    2013

    2013 Normalized**

    Sales:

     

     

     

     

     

    Performance Materials Sales

    1,361

    1,486

    1,560

    1,560

     

    Aqualon Sales

    2,786

    3,041

    3,193

    3,193

     

    Aqualon Core

    1,074

    1,175

    1,234

    1,234

     

    Aqualon ISP

    1,712

    1,866

    1,959

    1,959

     

    Valvoline Sales

    1,696

    2,173

    2,216

    2,216

     

    Water Technologies Sales

    1,909

    1,981

    2,080

    2,080

     

    Elims

    -6

    -16

    0

    0

     

    Total Sales

    7,746

    8,666

    9,050

    9,050

     

     

     

     

     

     

     

    YoY Sales Growth %

     

     

     

     

     

    Performance Materials

     

    9.2%

    5.0%

    0.0%

     

    Aqualon

     

    9.2%

    5.0%

    0.0%

     

    Valvoline

     

    28.1%

    2.0%

    0.0%

     

    Water Technologies

     

    3.8%

    5.0%

    0.0%

     

    Total Sales Growth

     

    11.9%

    4.4%

    0.0%

     

     

     

     

     

     

     

    EBITDA:

     

     

     

     

     

    Performance Materials EBITDA

    119

    131

    139

    139

     

    Aqualon EBITDA

    645

    720

    785

    785

     

    Aqualon Core

    245

    280

    295

    295

     

    Aqualon ISP

    400

    440

    490

    490

     

    Valvoline EBITDA

    264

    305

    315

    315

     

    Water Technologies EBITDA

    180

    210

    224

    224

     

    Pension Benefit

    0

    8

    0

    0

     

    Elims

    -43

    -11

    -11

    -11

     

    Total EBITDA

    1,165

    1,363

    1,452

    1,452

     

     

     

     

     

     

     

    EBITDA Mgns:

     

     

     

     

     

    Performance Materials

    8.7%

    8.8%

    8.9%

    8.9%

     

    Aqualon

    23.2%

    23.7%

    24.6%

    24.6%

     

    Aqualon Core

    22.8%

    23.8%

    23.9%

    23.9%

     

    Aqualon ISP

    23.4%

    23.6%

    25.0%

    25.0%

     

    Valvoline

    15.6%

    14.0%

    14.2%

    14.2%

     

    Water Technologies

    9.4%

    10.6%

    10.8%

    10.8%

     

    Total EBITDA Mgn

    15.0%

    15.7%

    16.0%

    16.0%

     

     

     

     

     

     

     

    EBIT:

     

     

     

     

     

    Performance Materials EBIT

    50

    62

    70

    70

     

    Aqualon EBIT

    434

    504

    569

    569

     

    Aqualon Core

    150

    180

    195

    195

     

    Aqualon ISP

    284

    324

    374

    374

     

    Valvoline EBIT

    228

    270

    280

    280

     

    Water Technologies EBIT

    95

    125

    139

    139

     

    Pension Benefit

    0

    8

    8

    8

     

    Elims

    -43

    -11

    -11

    -11

     

    Core

     

    -3

     

     

     

    Pension Realignment

     

    -8

     

     

     

    Total EBIT

    764

    958

    1,055

    1,055

     

     

     

     

     

     

     

    Incremental Mgn:

     

     

     

     

     

    Performance Materials

     

    9.6%

    10.8%

     

     

    Aqualon

     

    27.4%

    42.7%

     

     

    Aqualon Core

     

    29.7%

    25.5%

     

     

    Aqualon ISP

     

    26.0%

    53.6%

     

     

    Valvoline

     

    8.8%

    23.0%

     

     

    Water Technologies

     

    40.9%

    15.0%

     

     

    Incremental Mgn

     

    21.0%

    25.5%

     

     

     

     

     

     

     

     

    Interest Expense

    231

    225

    206

    166

     

    Core

    101

    95

    76

    36

     

    ISP

    130

    130

    130

    130

     

     

     

     

     

     

     

    Pre Tax

    533

    733

    850

    890

     

    Tax

    179

    245

    285

    267

     

    Tax Rate

    33.5%

    33.5%

    33.5%

    30.0%

     

     

     

     

     

     

     

    Net Income

    354

    487

    565

    623

     

    EPS

    4.43

    6.09

    7.06

    7.78

     

    Shares

    80

    80

    80

    80

     

     

    3) ASHLAND EPS WALK

    2012 Walk

     

     

     

    EPS Impact

    Part 1- Deal changes from 2011 to 2012

     

     

     

     

    (distribution sale & ISP)

     

     

     

     

     

     

     

     

     

    1) 40mn of eliminations comes out

     

     

     

    0.35

    2) 8mm Pension Headwind in Elim offset in Core

     

     

    0.00

    3) +342mn of ISP EBIT

     

     

     

     $       1.38

    4) Tax uptick to 33.5% versus guide of 35%

     

     

     

    -

    5) 130mm incremental interest from ISP

     

     

     

    -

    Part 1 Total

     

     

     

     $      1.73

     

     

     

     

     

    Part 2- Business Segment improvement

     

     

     

     

    1) Performance Materials

     

     

     

    0.11

    2) Aqualon

     

     

     

    0.26

    3) Valvoline

     

     

     

    0.37

    4) Water Tech

     

     

     

    0.26

     

     

     

     

     

    Part 2 Total

     

     

     

     $      0.99

     

     

     

     

     

    Base 2011 EPS

     

     

     

     $      3.36

     

     

     

     

     

     

     

     

     

     

    Projected 2012 EPS

     

     

     

     $      6.09

     

     

     

     

     

     

     

     

     

     

    2013 Walk

     

     

     

     

    1) 50mm benefit from ISP Synergy

     

     

     

    0.42

    2) ISP Incremental EBIT

     

     

     

    0.00

    3) Performance Incremental EBIT

     

     

     

    0.07

    4) Aqualon Core Incremental EBIT

     

     

     

    0.12

    5) Valvoline Incremental EBIT

     

     

     

    0.08

    6) Water Incremental EBIT

     

     

     

    0.12

    7) Interest Expense

     

     

     

    0.16

    Total

     

     

     

    0.97

     

     

     

     

     

    Projected 2013 EPS

     

     

     

    7.06

     

     

     

     

     

    1) Interest Expense Swing

     

     

     

    0.33

    2) Tax

     

     

     

    0.39

    Normalized 2013 EPS**

     

     

     

    7.78

    **2013 Adjusted- Assumes 2013 Sales and Margins with

     

     

    Normalized 30% Tax rate and full Benefit of 650mm Bond

     

     

    Take out

     

     

     

     

     

     

    4) ASHLAND EV/EBITDA AS CASH FLOW PAYS DOWN DEBT

     

     

    Sep

    Sep

    Sep

    Sep

     

    FY 11E

    FY 12E

    FY 13E

    FY 14E

     

     

     

     

     

    Cash

    1,045.0

    1,674.4

    1,717.4

    2,490.3

    Debt

    4,148.0

    4,148.0

    3,498.0

    3,498.0

     

     

     

     

     

     

     

     

     

     

    Cash EPS

     

     

     

     

    Combined Ebitda

    1,165.0

    1,362.6

    1,452.4

    1,550.0

    Less: Interest Expense

    231

    225

    206

    165.8

    PreTax

    533

    733

    850

    1,012.0

    Cash Tax (25%)

    133

    183

    212

    253

    Less: Capex

    285

    325

    341

    358

    Cash NI

    476

    629

    693

    773

    Cash EPS

     $        5.9

     $        7.9

     $         8.7

     $          9.7

     

     

     

     

     

     

     

     

     

     

    Consolidated Ebitda

    1,165.0

    1,362.6

    1,452.4

    1,452.4

     

     

     

     

     

    Shares

    80.0

    80.0

    80.0

    80.0

    Price

    61.25

    61.25

    61.25

    61.25

    Mcap

    4,900.0

    4,900.0

    4,900.0

    4,900.0

    Net Debt

    3,103.0

    2,473.6

    1,780.6

    1,007.7

    EV

    8,003.0

    7,373.6

    6,680.6

    5,907.7

    Net Debt/EBITDA

    2.7x

    1.8x

    1.2x

    0.7x

     

     

     

     

     

    EV/EBITDA

    6.9x

    5.4x

    4.6x

    4.1x

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Pension Plus OPEB

    4,378.0

     

     

     

    Assets

    3,025.0

     

     

     

    Net Liability

    1,353.0

     

     

     

     

     

     

     

     

    After Tax

    947.1

    947.1

    947.1

    947.1

     

     

     

     

     

    Pension Expense

    100.0

    100.0

    100.0

    100.0

    Ebitdap

    1,265.0

    1,462.6

    1,552.4

    1,650.0

     

     

     

     

     

    EV including Underfunded Pension

    8,950.1

    8,320.7

    7,627.7

    6,854.8

     

     

     

     

     

    EV/Ebitdap

    7.1x

    5.7x

    4.9x

    4.2x

     

    Catalyst

    The proposed transaction with International Specialty Products Inc. (ISP) is scheduled to close at the end of August and should be a catalyst for the stock.

    Messages


    SubjectUpdate
    Entry08/22/2011 03:15 PM
    Memberbruno677
    Thanks for the write-up.  The stock has been hit hard in this market and is now down about 24% in the past month.  Any further thoughts on the chemical cycle or on the transaction. 
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