February 11, 2023 - 12:30am EST by
2023 2024
Price: 23.98 EPS 1.39 1.60
Shares Out. (in M): 674 P/E 17.3 15.0
Market Cap (in $M): 16,167 P/FCF 21.5 18.7
Net Debt (in $M): 5,914 EBIT 1,460 1,560
TEV (in $M): 22,082 TEV/EBIT 15.1 14.2

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Executive Summary
Avantor, Inc. (AVTR) represents a compelling long opportunity with >30% upside from current levels. As discussed below, the current setup for the stock appears highly attractive given (i) fundamental headwinds for the Company are abating, (ii) the stock is trading at a compelling valuation, (iii) the leverage profile for the Company continues to decline which will help drive the equity, and (iv) the Company is building its pipeline of M&A opportunities, and an accretive transaction would serve as a nice catalyst for the stock.
BenHillGriffin posted an excellent VIC write-up on the stock on 2/20/20 which goes into extensive detail about the fundamental attributes of the Company and is highly recommended reading. Many key points BenHillGriffin made in their write-up are mentioned in this write-up for the reader’s convenience – want to make sure credit is given.
Company Description
AVTR is a global provider of mission-critical products and services to customers in the biopharma, healthcare, education & government, and advanced technologies & applied materials industries. AVTR participates in virtually every stage of the most important research, scale-up and manufacturing activities in the industries the Company serves.
The Company reports in three geographic segments based on customer location:
  • Americas - 59.5% of 2022 Revenues, 61.8% of 2022 Pre-Corporate EBITDA
  • Europe - 33.5% of 2022 Revenues, 30.1% of 2022 Pre-Corporate EBITDA
  • Asia, Middle East and Africa - 7.0% of 2022 Revenues, 8.1% of 2022 Pre-Corporate EBITDA
Approximate revenues by end market are:
  • Biopharma - 55%
  • Healthcare - 10%
  • Education and Government - 10%
  • Advanced Technology and Applied Materials - 25%
In aggregate, AVTR provides ~6mm products and services. Approximate revenues by product are:
  • Materials & Consumables - 75% (of which 53% are proprietary, 47% are third-party)
    • Products include ultra-high purity chemicals and reagents, lab products and supplies, highly specialized formulated silicone materials, customized excipients, customized single-use assemblies, process chromatography resins and columns, analytical sample prep kits and education and microbiology and clinical trial kits, peristaltic pumps and fluid handling tips.
  • Services & Specialty Procurement - 10%
    • Products include filtration systems, virus inactivation systems, incubators, analytical instruments, evaporators, ultra-low-temperature freezers, biological safety cabinets and critical environment supplies
  • Equipment & Instrumentation - 15%
    • Products include onsite lab and production, clinical, equipment, procurement and sourcing and biopharmaceutical material scale-up and development services.
Other Key Points
  • Secular Tailwinds - AVTR’s business is supported by secular tailwinds. AVTR sells into the biopharma, healthcare, education & government, and advanced technologies & applied materials industries. These industries have historically grown faster than GDP and are typically less sensitive to broader economic conditions, providing stability.
  • Recurring Revenues - AVTR’s business has a strong recurring revenue stream. Management estimates that ~85% of AVTR’s revenues are generated from products and services which are recurring in nature.
  • Diverse Customer Base - AVTR has a diverse customer base with no single end customer comprising more than 4% of net sales.
  • Large Addressable Market - Management estimated that in 2018 the total addressable market for their products and services was $70bn.
  • Low Capital Intensity – As a distributor, AVTR has relatively low capital requirements to maintain its business. For reference, in 2022 the Company generated $7.5bn in revenues, $1.6bn in EBITDA and only spent $133mm in capex.
Significant Changes
While the underlying fundamental story for AVTR has remained intact since BenHillGriffin’s write-up on 2/20/20, the Company has moved through significant changes in its business as well as the market in general. These changes have caused the current setup for the stock to be quite attractive.
First, the PE overhang on the stock has been lifted. In November 2020 both New Mountain Capital and Goldman Sachs ceased being “related parties” of AVTR given the reduced interest they held in the Company, through the IPO, stock offerings, etc. By way of background, New Mountain Capital had acquired AVTR in 2010 (organized as Mallinckrodt Baker, Inc. at that time) from Covidien plc. Then, Goldman had become a related party in 2017 in connection with AVTR’s acquisition of VWR Corporation when the firm obtained control of more than 10% of AVTR’s common stock. Currently, neither party holds more than a 5% interest in AVTR, and thus PE ownership is no longer an overhang on the stock.
Second, AVTR has completed several acquisitions, including:
  • Masterflex. This acquisition was completed on 11/1/21 for $2.7bn. Masterflex is a global manufacturer of peristaltic pumps and aseptic single-use fluid transfer technologies.
  • Ritter GmbH – This acquisition was completed on 6/11/21 for €890mm. Ritter GmbH's current business is focused on providing diagnostic system providers and liquid handling OEMs with robotic fluid handling tips, plates, and other consumables.
  • RIM Bio in 2021 – This acquisition was completed on 6/2/21 for undisclosed terms. RIM Bio is a China-based single-use bioprocess bag manufacturer. RIM Bio's current business provides a complete range of single-use 2D bags, 3D bags, tank liners, bag assemblies and multi-bag manifolds used in the manufacturing of biologics including monoclonal antibodies (mAbs), vaccines, cell and gene therapies, and recombinant proteins.
At the time of the Masterflex acquisition, the market was very frothy in general with stock valuations trading at their highs. AVTR was definitely a strong performer, with the stock at ~$40/share, up >180% from its IPO in mid-2019. Investors liked AVTR’s revenues and earnings growth and rewarded the stock with a ~26x forward PE multiple (consensus 2022E EPS was ~$1.53).
AVTR reported strong results in 4Q21 and again in 1Q22. Consensus estimates for FY2022 and FY2023 remained stable at ~$1.53 and $1.74, respectively. However, the stock came in with the broader market in general, trading down from ~$40 to ~$31 in June 2022 on PE multiple compression. In addition, AVTR had added leverage to its balance sheet to complete the acquisitions listed above. Net Leverage went from 3.5x at the end of 1Q21 up to 4.2x at the end of FY2021. As asset values in general declined in 2022, the additional leverage placed that much more pressure on AVTR’s equity.
Third, AVTR experienced significant fundamental headwinds which caused the Company’s earnings to suffer:
  • AVTR’s 2Q22 results were well below expectations, and the Company lowered its EPS guidance for the year to a range of $1.43-1.49 from $1.48-1.54. One of the main areas of weakness was lower-than-expected M&A contributions. Revenues and EBITDA from the Masterflex acquisition were well below expectations, which management attributed to component availability constraints, particularly printed circuit boards for its peristaltic pumps, as well as the impact from China’s Covid lockdown. In addition, results from the Ritter acquisition were weaker than expected due to FX headwinds as well as Ritter’s Covid-related business falling off faster than expected.
  • Then, in reporting 3Q22 results, AVTR lowered its FY2022 EPS guidance again to a range of $1.38-1.40. Management lowered its guidance due to softening trends in European industrial demand as well as inventory destocking in certain laboratory consumables.
  • On 2/3/22 AVTR reported FY2022 EPS of $1.41, slightly ahead of management’s reduced guidance of $1.38-1.40. Management introduced FY2023 EPS guidance of $1.35-1.45, the midpoint of which matched the consensus estimate of $1.40. What left the market unnerved, however, was that on the earnings call, management articulated that they expected the same headwinds encountered in 2022 (inventory destocking, Covid-revenue roll off, softer industrial demand) to continue into 1H23, with 1Q23 being the “low point”. This, of course, implied that AVTR’s results would be 2H23 weighted and that much more subject to risk and uncertainty.
The earnings disappointments placed additional pressure on AVTR’s stock which continued to trade down from ~$31 in June to a low of ~$18 in October. The stock then started to recover with the market in general and is now at ~$24.
The Opportunity
The current setup for AVTR’s stock appears attractive for multiple reasons:
  • Fundamental Headwinds Abating – As discussed above, AVTR encountered multiple fundamental headwinds during 2022. These headwinds are expected to persist in 1H23 but to start abating post 1Q23. Post 1Q23 AVTR fundamental performance should become “clean”. AVTR should return to steady organic growth, driven by the secular tailwinds underlying the business, and should also experience margin expansion, greater FCF generation, etc.
  • Attractive Valuation – Given the selloff in AVTR’s stock, the Company is now trading at ~17x 2023E EPS and 15.0x 2024E EPS, based on consensus estimates. It’s fair to say that AVTR has “above GDP” growth prospects a risk profile which is “below the market” and yet the stock is trading at a lower multiple than the S&P500 Index (17.3x 2023E EPS and 15.7x 2024E EPS). Further, AVTR is trading at a significant discount to its peer group (A, BIO, BRKR, DHR, HSIC, MTD, PDCO, PKI, QGEN, TMO, WAT). Peers trade at an average multiple of ~26x 2023E EPS. Accordingly, AVTR is trading at a ~35% discount to its peers which appears excessive.
  • Declining Leverage – AVTR has already reduced its net leverage from 4.2x at the end of FY2021 to 3.7x at the end of FY2022. The Company is now within its target leverage range of 2.0-4.0x. Management noted on the 4Q22 earnings call their intent to remain focused on incremental deleveraging over the course of 2023. As AVTR reduces its leverage, the value will accrete to the equity.
  • Inorganic Growth Opportunities – While AVTR management indicated that their near-term focus for capital allocation is continued deleveraging, they did note on the 4Q22 earnings call that they are building their pipeline of M&A opportunities. The Company has the financial flexibility to pursue M&A given its reduced leverage, and an accretive transaction would serve as a nice catalyst for the stock.
Risk / Reward Profile
My own estimates are very similar to consensus estimates, so I don’t have a “differentiated view” on the earnings power of the Company.
In a Base Case scenario where AVTR generates $1.60 in 2024 EPS (consensus estimate) and its PE valuation multiple expands to 20.0x to be “less of a discount to peers”, the stock will reach $32, up $8 or >30% from current levels.
In a Downside Case where AVTR generates $1.40 in 2024 EPS and trades at a reduced 15.0x PE multiple, a very significant discount to peers, the stock will decline to $21, or down ($3) or down (12.5%) from current levels.
In an Upside Scenario where AVTR generates $1.80 in 2024 EPS and trades at a 23.0x PE multiple, still a discount to peers, the stock will reach $41, up $17 or >70% from current levels.
Based on the above, the risk/reward profile for AVTR appears attractively skewed to the upside.
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


Fundamental headwinds abating - leading to a return in revenue growth, margin expansion, greater FCF generation, etc.

Valuation - multiple expansion to trade closer in-line with peers

Declining Leverage

Inorganic growth opportunities - management is building their M&A pipeline and an accretive transaction would serve as a nice catalyst for the stock.

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