Business Solution

Univar Answers Inventory: Modestly Undervalued Trade (NYSE:UNVR)

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Univar Answers (NYSE:UNVR) is the second-largest world chemical distributor in the back of Germany’s Brenntag (OTCPK:BNTGF). The corporate purchases chemical substances from over 1,300 chemical manufacturers international and warehouses, repackages, blends, transports and sells the ones chemical substances to greater than 100,000 shoppers in over 100 nations.


Evaluate (Univar Investor Presentation)

Univar has been constructed by the use of a sequence of acquisitions over the last a number of many years. Acquisitions have equipped Univar important operational synergies in relation to each scale (better buying energy, skill to cut back replica logistical and overhead prices) & scope (increase product and geographical functions). Additional acquisitions have generally been executed with sexy economics (sub 7x EBITDA on post-synergy foundation).


M&A historical past (Investor Presentation)

Chemical distribution is a many-to-many distribution trade. Univar isn’t overly reliant on anybody provider of chemical substances, and no buyer represents a vital proportion of gross sales. This boundaries the specter of disintermediation. Additionally, there’s a important logistical part to the provider that third-party chemical vendors like Univar supply. The corporate purchases chemical substances in huge a lot from providers, repackages into smaller a lot, customizes formulations, and makes well timed/weekly deliveries to over 100,000 shoppers from over 700 places by the use of a fleet of three,700 supply cars.


Logistics are a Aggressive Benefit (Investor Presentation)

The corporate has a large number of aggressive benefits as opposed to smaller avid gamers, together with:

  1. Higher buying phrases (Univar purchases $7+ billion price of chemical substances yearly) which enable the corporate to offer aggressive pricing and earn upper gross and running margins
  2. Logistics – having a big marketplace percentage will increase path density (extra deliveries consistent with truck, consistent with day) and lowers the operational value of supply
  3. Talent to spend money on virtual gross sales providing – whilst smaller chemical distribution firms have restricted sources to spend money on e-commerce projects, Univar has a number one e-commerce platform which provides advanced customer support and lowers the price of doing trade.
  4. Breadth of providing – Univar supplies a much wider product providing – shoppers have get admission to to hundreds of chemical substances

Lengthy-Time period Good fortune

Whilst chemical manufacturers generally tend to have very cyclical effects because of adjustments in particular finish marketplace call for (product & area), risky enter prices, and total macroeconomic cyclicality, as proven under, chemical vendors like Univar produce a lot more solid effects.


Lengthy-term Monetary historical past (Investor Presentation)

The relative steadiness of Univar’s effects comes from:

A/ Assorted finish marketplace call for – the corporate serves shoppers throughout industries and geographies.

B/ Talent to cross worth adjustments directly to shoppers – whilst a chemical manufacturer will usually see important contraction in profitability if costs decline (whilst maximum prices stay mounted), vendors usually earn a extra solid degree of profitability consistent with unit delivered.

That mentioned, the corporate has been impacted by means of industry-specific and macroeconomic stipulations (albeit to a lesser extent than chemical manufacturers). As you’ll be able to see above, Univar skilled declining profitability from 2011 to 2016. Univar was once a smaller, much less various corporate on the time and had oversized publicity to the oil & fuel {industry}, which skilled a vital downturn at the again of falling commodity costs. Because the graphic under illustrates, Univar is way much less reliant at the risky oil & fuel {industry} – as such, I be expecting effects will end up much less at risk of a downturn within the oil & fuel sector:

commodity exposure

Commodity publicity (Investor presentation)


At a worth of $28 consistent with percentage, Univar trades at simply 6x 2022 anticipated EBITDA at lower than 11x loose money float consistent with percentage. Alternatively, 2022 effects are above customary as Univar has been a beneficiary of inflationary traits that have boosted gross benefit margins (and running margins) and (till lately) a robust financial system which has pushed EBITDA to $1,050 million. The corporate has guided to a extra normalized lead to 2023, anticipating EBITDA to come back in round $960 million.


2023 EBITDA Information (In search of Alpha transcript)

For the aim of my valuation, I take a slight haircut to control’s 2023 steerage and suppose $900 million in EBITDA, which signifies that Univar is buying and selling at 7x ‘customary’ EBITDA and slightly below 12x loose money float consistent with percentage.

Given the corporate’s robust (and bettering) marketplace place, quite above GDP on an natural foundation (because it incrementally good points marketplace percentage) with additional upside from accretive M&A, I believe the honest price for Univar stocks is set 15x loose money float consistent with percentage which equates to $36 consistent with percentage. This implies that at its present worth of $28.35, Univar trades at a couple of 20% bargain to intrinsic price.


I view the chemical distribution trade as sexy and notice Univar as a long-term winner within the sector. As a price investor, I glance to shop for in at a 30% or better bargain to honest price. As such, I would be considering purchasing the inventory if it falls under $25 consistent with percentage.

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