Thursday, 23 October 2014

Dow Chemical - warming up to the story

At the last Dow Chemical quarterly disclosure (before today's) in July I observed here that:

'The question for Dow the extent of the discounting of the next stage opportunities/investments/products.  Still a x15s EV/ebit multiple does factor a lot of this - and the above unbundling - in.'

Since then the fall in the share price (from early US$50s to mid US$47s as I write) has started to bring a little bit of relief in the valuation...

...and the asset unbundling story continues apace (assisted by some continued activist interest).

To put US$6bn into context, this would be 8%+ of the company's EV.  Not too shabby if achieved.

Now of course this strategy has been in place for a number of quarters now, so what is either new or worth noting?  Well, pricing was sequentially year-on-year better...

...and this helped drive ebitda margins across the board:

I also liked the commentary/progression in the some of the company's more commoditised markets such as polyethylene.  Rising prices and operating rates do not always go hand in hand but so far this is working out well.  

And then from a catalyst perspective the investor day in just over three weeks seems potentially worthy.  Certainly I like the choice of subjects.  

Now Dow Chemical is still not ultra-cheap but trading now more in the x12s EV/ebit prospectively with the aforementioned value realisation / upcoming investor communication I am warming up to the story more.  I also note from the chart above that there appears to be some support in the US$44s.  

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