Buckley Capital: A Closer Look at Specialty Chemicals Company Ingevity ($NGVT)
In their Q1 2024 investor letter, Buckley Capital discussed their investment in Ingevity ($NGVT), a specialty chemicals company that faced temporary challenges due to high raw material costs. Buckley Capital views Ingevity as a well-managed company with significant growth potential.
Key Investment Highlights
- Strong Market Position
- Buckley Capital initiated a new position in Ingevity at an average cost in the low $40s. The fund sees Ingevity as a well-run and diversified company that should return to its historical growth rate within 12-18 months.
- Diverse Product Applications
- Ingevity’s products are used in various applications, including adhesives, agrochemicals, asphalt paving, bioplastics, coatings, elastomers, lubricants, pavement markings, publication inks, oil exploration and production, and automotive components. These products are largely renewably sourced, helping customers reduce their ecological impact.
- Environmental Contributions
- Ingevity’s asphalt emulsifiers enable pavement recycling, their automotive activated carbon products recover 8 million gallons of gasoline daily, and their agriculture adjuvants enhance crop protection. Additionally, their alternative-fuel vehicle technology promotes the use of renewable natural gas.
Business Segments
- Performance Materials:
- Monopolistic business with 45-50% EBITDA margins.
- Sells activated carbon to auto manufacturers, a mid-single-digit grower due to increasing global emissions standards.
- Road Technologies:
- High-quality pavement business with mid-20% EBITDA margins.
- Expected to grow organically in the low-mid teens.
- Advanced Polymer Technology (APT):
- Sells caprolactones, used in automotive paint protection, windmill coatings, footwear, and bioplastics.
- Industrial Specialties:
- Historically produced tall oil fatty acids and rosins using crude tall oil (CTO).
- Faced challenges due to a 300% increase in CTO prices, affecting margins.
Positive Recent Developments
- Crude tall oil prices have decreased significantly, improving margins.
- Ingevity shut down a low-margin factory in Deridder, LA.
- Specialty chemical markets are rebounding in 2024.
Future Prospects
Buckley Capital believes Ingevity will earn $5.00-$6.00 in 2025, indicating they paid 7-8x earnings for a business that historically traded at 14-17x earnings. They expect Ingevity to potentially generate $700-$800 million of EBITDA by 2028, which could value the company at $200-$250 per share, representing a 4-5x return on their average cost.
Attractive Valuation
Ingevity is seen as significantly undervalued, with potential for over 80-100% upside by 2025 based on earnings multiple reversion. The company could be a multi-bagger over the next 3-5 years with reasonable assumptions.
Conclusion
Buckley Capital considers Ingevity a compelling investment in the specialty chemicals sector. They believe the company’s strong market position, diverse product applications, and recent positive developments position it well for substantial future growth. With an attractive valuation and robust growth prospects, Buckley Capital sees significant potential for Ingevity to deliver impressive returns over the long term.
Click here for the full pro investor letter.
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