Huntsman Corporation

HUN: NYSE

Huntsman manufactures chemicals for a diversity of industries, and has plants in 21 countries outside of the U.S.[1] The company is headquarted in The Woodlands, Texas[2], and the founding family still owns 13% of the company. [3]

Investment thesis

We believe over the last several years Huntsman Corporation has been moving away from a commodity chemicals business to a specialty chemicals business. The company has also reduced net leverage from 3.1x in 2017 to 1.4x net debt to EBITDA to start 2019. [4] We believe the company should continue to grow faster than GDP, and has a new focus on free cash flow, which will be returned to shareholders. It is our opinion that at less than 5x EBITDA, Huntsman Corporation is undervalued, and share buybacks will be beneficial to shareholders.

Confirmation through research

Huntsman spun-off what what we consider a more commoditized and highly cyclical business, which was named Venator.[5] In our opinion this led the company to acquire $2.1 billion in proceeds from the spin-off, which allowed the company to de-lever. Further we believe that Huntsman has shown a new focus on free cash flow, as they have publically stated their goal of generating $1.8 billion in free cash flow over the next 3 years[6], which we believe would be nearly 40% of the market cap at a $19 share price. Finally, it is our opinion that the market is already factoring in a recession, as the company is still undervalued in our stressed scenario analysis.

Variant Perception

In our opinion the market is not assigning a fair value to the business considering what we believe is the company’s transformation to a specialty chemical player, the company’s lower cyclicality, and the company’s focus on free cash flow. Further we feel that the market is already factoring in a deep recession in the valuation. We believe there is upside in Huntsman Corporation, as they grow, buy back shares, and continue to generate what we believe are strong free cash flows.