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METHANEX: Valuation and Strategic Review. Recommendation: BUY 1-year Price Target: C$36.15 Price as of Feb 7 th : C$34.24 Dividend Yield: 2.15% Total Implied Return: 7.68%. MICHAEL COOK ERIN ROBINSON PHIL WALLACE RUSHAB HARIA RAJANVIR AHUJA . AGENDA.

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Presentation Transcript
slide1

METHANEX:

Valuation and Strategic Review

Recommendation: BUY

1-year Price Target: C$36.15

Price as of Feb 7th: C$34.24

Dividend Yield: 2.15%

Total Implied Return: 7.68%

MICHAEL COOK

ERIN ROBINSON

PHIL WALLACE

RUSHAB HARIA

RAJANVIR AHUJA

slide2

AGENDA

METHANEX: Valuation and Strategic Review, 22nd February, 2013

Prepared for the 2013 CFA Research Challenge

1

slide3

Introduction: What is Methanol?

Acetic Acid

Introduction

Dimethyl Ether

Industry Analysis

Company Overview

Reasons to Buy

Investment Risks

Valuation

Conclusions

Fuel Blending

Formaldehyde

METHANEX: Valuation and Strategic Review, 22nd February, 2013

Prepared for the 2013 CFA Research Challenge

2

slide4

Industry Analysis: A Market Set for Growth

Introduction

Industry Analysis

Company Overview

Reasons to Buy

Investment Risks

Valuation

Conclusions

Source: Company Reports

METHANEX: Valuation and Strategic Review, 22nd February, 2013

Prepared for the 2013 CFA Research Challenge

3

slide5

Industry Analysis: Methanol Markets

Introduction

Industry Analysis

Company Overview

Reasons to Buy

Investment Risks

Valuation

Conclusions

Source: Company Reports, Team Research

  • 61% of world demand comes from Asia
  • Distribution channels critical for transfers from supply to demand markets

METHANEX: Valuation and Strategic Review, 22nd February, 2013

Prepared for the 2013 CFA Research Challenge

4

slide6

Introduction

  • Company Overview

Industry Analysis

Company Overview

Reasons to Buy

Investment Risks

Valuation

Conclusions

Source: Company Reports

  • Plant distribution allows low cost natural gas inputs
  • Increasing production in strategic North American locations

METHANEX: Valuation and Strategic Review, 22nd February, 2013

Prepared for the 2013 CFA Research Challenge

5

slide7

Introduction

  • Increased demand forecast to outpace short-term supply
  • Methanol price stability
  • Low cost positioning is stable and improving
  • Oil-natural gas arbitrage play

Industry Analysis

Company Overview

  • Reasons to Buy

Reasons to Buy

Investment Risks

Valuation

Conclusions

Source: Company Reports

METHANEX: Valuation and Strategic Review, 22nd February, 2013

Prepared for the 2013 CFA Research Challenge

6

slide8

Introduction

Industry Analysis

Company Overview

  • Reasons to Buy – Chinese Fuel Blending

Reasons to Buy

Investment Risks

Valuation

Conclusions

Source: Company Reports

METHANEX: Valuation and Strategic Review, 22nd February, 2013

Prepared for the 2013 CFA Research Challenge

7

slide9

Introduction

Industry Analysis

Company Overview

Reasons to Buy

Investment Risks

  • Investment Risks

Valuation

Conclusions

METHANEX: Valuation and Strategic Review, 22nd February, 2013

Prepared for the 2013 CFA Research Challenge

8

slide10

Introduction

Historical Methanol Posted & Realized Price

Industry Analysis

Company Overview

Reasons to Buy

Investment Risks

  • Investment Risks

Valuation

Conclusions

Source: Company Reports

$10 Δ in Methanol price ≈ $37m Δ in EBITDA

METHANEX: Valuation and Strategic Review, 22nd February, 2013

Prepared for the 2013 CFA Research Challenge

9

slide11

Introduction

Industry Analysis

Company Overview

Reasons to Buy

Investment Risks

Valuation

Conclusions

  • Valuation: Methodology

METHANEX: Valuation and Strategic Review, 22nd February, 2013

Prepared for the 2013 CFA Research Challenge

10

slide12

Production Forecast

Introduction

Industry Analysis

Company Overview

Reasons to Buy

Investment Risks

Valuation

Conclusions

  • Valuation: DCF
  • Production is predominantly from reliable regions (tapering off in Egypt)

METHANEX: Valuation and Strategic Review, 22nd February, 2013

Prepared for the 2013 CFA Research Challenge

11

slide13

Introduction

Sales Mix (by volume)

9%

Industry Analysis

Company Overview

Reasons to Buy

31%

Investment Risks

Valuation

Conclusions

60%

  • Valuation: DCF

METHANEX: Valuation and Strategic Review, 22nd February, 2013

Prepared for the 2013 CFA Research Challenge

12

slide14

Introduction

Cash Flow Analysis

Industry Analysis

Company Overview

Reasons to Buy

Investment Risks

Valuation

Conclusions

  • Valuation: DCF

METHANEX: Valuation and Strategic Review, 22nd February, 2013

Prepared for the 2013 CFA Research Challenge

13

slide15

Introduction

Industry Analysis

Company Overview

Reasons to Buy

Investment Risks

Valuation

Conclusions

  • Valuation: Comparables

METHANEX: Valuation and Strategic Review, 22nd February, 2013

Prepared for the 2013 CFA Research Challenge

14

slide16

Forward EV/EBITDA

Introduction

Industry Analysis

Company Overview

Reasons to Buy

Investment Risks

Valuation

Conclusions

  • Valuation: Comparables

Growth in 2014 implies MX is trading at a discount to historical levels

METHANEX: Valuation and Strategic Review, 22nd February, 2013

Prepared for the 2013 CFA Research Challenge

15

slide17

Introduction

Industry Analysis

Company Overview

Reasons to Buy

Investment Risks

Valuation

Conclusions

  • Conclusion

METHANEX: Valuation and Strategic Review, 22nd February, 2013

Prepared for the 2013 CFA Research Challenge

16

slide19

Introduction

Industry Analysis

Company Overview

Prices outside this range can have a material impact on Nat Gas supply contract prices

Reasons to Buy

Investment Risks

Valuation

Conclusions

  • Appendix: Sensitivity Analysis

Sensitivity Analysis (DCF)

METHANEX: Valuation and Strategic Review, 22nd February, 2013

Prepared for the 2013 CFA Research Challenge

slide20

Introduction

Industry Analysis

Company Overview

Reasons to Buy

Investment Risks

Valuation

Conclusions

  • Appendix: Competitor Analysis

METHANEX: Valuation and Strategic Review, 22nd February, 2013

Prepared for the 2013 CFA Research Challenge

slide21

Introduction

Industry Analysis

Company Overview

Reasons to Buy

Investment Risks

Valuation

Conclusions

  • Appendix: Income Statement

METHANEX: Valuation and Strategic Review, 22nd February, 2013

Prepared for the 2013 CFA Research Challenge

slide22

DuPont Analysis

Introduction

Changes in ROE come from Net Margin. Shifting towards high margin segments will boost ROE.

Industry Analysis

Company Overview

Reasons to Buy

Investment Risks

Valuation

Conclusions

  • Appendix

D/E Ratio

METHANEX: Valuation and Strategic Review, 22nd February, 2013

Prepared for the 2013 CFA Research Challenge

slide23

Introduction

Industry Analysis

Historical Beta

Company Overview

Reasons to Buy

Since 2008 beta has been consistently between 1.75 and 2.0

Investment Risks

Valuation

Conclusions

  • Appendix

Historically beta was very low

METHANEX: Valuation and Strategic Review, 22nd February, 2013

Prepared for the 2013 CFA Research Challenge