Summary
- Celanese is a diversified chemicals leader.
- Its operations are characterized by favorable financials and its industries by high barriers to entry.
- The management has an excellent track record in execution and in shareholder distribution.
- The valuation is fair / below fair for an excellent operation. We are buyers at current prices.
- Improving macro environment, easing of trade tensions, and shareholder friendliness are potential catalysts for the price.
Investment Thesis
We are Buy rated on Celanese (CE). We like its technical lead in its business areas, its downstream exposure and its relatively rapid growth. We love the financials, and the excellent track record of the management. We view the valuation as attractive compared to its history and peers given the Company’s fundamentals. We think that the shaky macro environment has provided a good buying opportunity. We view a pick-up in global growth, easing in trade tensions, and continued shareholder friendliness as potential catalysts.
Company Overview – A Diversified Leader in an Industry with Large Barriers to Entry
Celanese Corporation is a global producer of chemicals and advanced materials. It operates mainly under three business segments: Engineered Materials, Acetate Tow, and Acetyl Chain.
Engineered Materials is the growth engine of the company. Making up more than 40% of total revenues at an 18% EBIT margin, the segment is at the heart of investors. Engineering materials sales grew to $2.59 bn in 2018 from $1.55 bn in 2016. Engineered Materials are value-added products and are tailored to customers’ specific needs and are sold project-based. The products are used in primarily automotive, medical, industrial, energy storage, consumer electronics, telecommunications, and food & beverage industries. This downstream segment differentiates Celanese from its commodity peers as it makes its earnings less cyclical. Celanese’s leadership in this market is of particular importance given the market’s high barriers to entry created by capital costs.
Celanese is a leader in the acetic acid sector. Its Acetyl Chain segment includes intermediate chemistry, emulsion polymers and EVA polymers businesses, is active in every major global industrial sector and serves diverse consumer end-use applications. The Company generated ~$4 bn in revenues from Acetyl Chain products, making the segment the flagship. The Acetyl Chain segment reported a 25% EBIT margin in 2018.
Acetate Tow is small but is a profit generator thanks to healthy margins. Celanese generated $650 mn in revenues from the segment with a 20% EBIT margin. This segment mainly sells fiber to be used in cigarette filters.
Overall, Celanese is a leader in acetic acid products and has a global presence. Its operations are characterized by scale and diversification and are in consolidated industries with high barriers to entry.
