CC- Chemours Company

[eclecticvalue]

This is the company spun-off by Dupont. It was highly loaded with debt. The play would be for the company to reduce the debt load. And my question is would deleveraging help bolster the stock price? Have there been any cases of deleveraging that increased the stock price?

[DeepSouth]

This is the company spun-off by Dupont. It was highly loaded with debt. The play would be for the company to reduce the debt load. And my question is would deleveraging help bolster the stock price? Have there been any cases of deleveraging that increased the stock price?

 

The equity trades as a distressed stub; effectively anytime you can delever in this situation without dilution and without selling your crown jewel assets will help the equity.

 

TiO2 sucks and has sucked for several years. End users are thrifting, the Chinese overbuilt capacity, demand is weakening in EMs and DMs aren't picking up the slack. IIRC, CC does have the advantage of owning the only chloride technology capable of processing ilmenite. This allows them to use the cheaper and cleaner manufacturing technology with the cheapest feedstock ore -> key competitive advantage.

[pantheman]

This is the company spun-off by Dupont. It was highly loaded with debt. The play would be for the company to reduce the debt load. And my question is would deleveraging help bolster the stock price? Have there been any cases of deleveraging that increased the stock price?

 

The equity trades as a distressed stub; effectively anytime you can delever in this situation without dilution and without selling your crown jewel assets will help the equity.

 

TiO2 sucks and has sucked for several years. End users are thrifting, the Chinese overbuilt capacity, demand is weakening in EMs and DMs aren't picking up the slack. IIRC, CC does have the advantage of owning the only chloride technology capable of processing ilmenite. This allows them to use the cheaper and cleaner manufacturing technology with the cheapest feedstock ore -> key competitive advantage.

 

And don't forget the environmental cleanup/litigation issues. I think I remember $500m as potential costs if they lose.

[heth247]

Anyone still following this company?  Stock down a lot over the last few days following 1Q results. The 35% drop in Tio2 volume is scaring, but management is predicting a rebound in 2H 2019, and guiding $4~$5 EPS, $550M FCF for the year. That translates to a <7X PE and 9X FCF for the lowest cost TiO2 producer with a wide moat and high ROIC.

 

On the other hand, Larry Robbins of Glenview Capital just came out shorting it for its legal risk (which has been there for a long time?).

[Spekulatius]

They guided down from above numbers. Still seems cheap:

Their EV value is ~$6B consisting of $2B in equity and $4B in debt. EBITDA this year is $1-1.5B. I don’t know what their environmental liabilities will be, bit note that in their worst year 2016, they paid $330M, which would be less than 1/3 of their. EBITDA. The current valuation implies that they would pay out $330M every year, at which CC would trade at 8x EBITDA, which is still fairly cheap.

 

Business wise, I note that fluorochemicals has EBITDA margins north of 25% and TiO2 even higher than that. TiO2 needs a lot of Capex though.

 

To me $2B in market cap is too cheap. CC almost trades like and equity stub, but it doesn’t seem distressed. I also think they have a point that Dupont lowballed the environment liabilities at spinoff. Make no mistake, this is a “crappola” spin-off, where DuPont wanted to get rid of some unwanted liabilities and business, but those business seem to be of a quite high quality. especially fluorochemicals isn’t that economically sensitive, I think. Might be a candidate to buy leap calls.

[johnpane]

This came onto my radar recently when I read about it in Greenlight's newsletter. Einhorn liked it at twice this price. The yield is over 8% and they seem to have plenty of cash flow to sustain it. They also have a big buyback authorization and were buying back in the 30's. Unless they are more distressed than they are revealing, they should aggressively be buying here below 12.

[Spekulatius]

Does anyone have an idea about the extend of the environmental liabilities for Chemour?

[Stuart D]

Unless they are more distressed than they are revealing, they should aggressively be buying here below 12.

 

I agree, they bought $500m @$37, so they should be backing up the truck at $12.

 

They don't look to be distressed in terms of debt maturities. The 10-k has the next maturity in 2023. However, they are keen to keep debt/EBITDA less than 3 and with EBITDA ~ $1b for the year perhaps they are feeling some pressure from that? I'm not sure what type of covenants they have with their lenders.

 

Also, there is a new-ish VIC write up on CC:

https://valueinvestorsclub.com/idea/Chemours/8793785935#description

 

[johnpane]

Unless they are more distressed than they are revealing, they should aggressively be buying here below 12.

 

I agree, they bought $500m @$37, so they should be backing up the truck at $12.

 

They don't look to be distressed in terms of debt maturities. The 10-k has the next maturity in 2023. However, they are keen to keep debt/EBITDA less than 3 and with EBITDA ~ $1b for the year perhaps they are feeling some pressure from that? I'm not sure what type of covenants they have with their lenders.

 

Also, there is a new-ish VIC write up on CC:

https://valueinvestorsclub.com/idea/Chemours/8793785935#description

 

Unfortunately, they did not buy back any during the 3rd quarter when the price was so low. Should we read that as a signal they need to conserve cash? I wrote to IR about this and they did not respond.

 

Thanks for the VIC link.