|Shares Out. (in M):||155||P/E||0||0|
|Market Cap (in $M):||7,866||P/FCF||0||0|
|Net Debt (in $M):||1,812||EBIT||0||0|
We are long shares of Brenntag (BNR), the world’s largest chemical distributor. Following the reset of 2016 EPS expectations from €3.00 to €2.42 and a tumultuous trading year in Europe, German-listed shares of BNR are now listed at €51 and 15x FCF, a low multiple for this high ROIC distribution business with a demonstrated ability to maintain margins and earnings through an economic cycle. Though commonly colored as an indirect participant in depressed energy markets, North American oil & gas makes up just 9% of Brenntag’s gross profits – and while the sharp contraction in North American E&P spending reduced BNR’s consolidated growth over a few quarters, resilient demand from the pharmaceutical, coatings, personal care, and food markets should lead to a growth inflection in early 2017, allowing Brenntag to exit 2017 generating more than €800m of EBITDA and €500m of FCF. Even within a secularly slow-growth world with 2% organic growth, Brenntag shares should attract a FCF multiple of 18-20x once year-over-year comparisons stabilize in 2017 – at that multiple, shares would be worth €60-65, representing a 20-30% premium to today.