IPO Preview: Trinseo S.A.

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 |  About: Trinseo S.A. (TSE)
by: IPOdesktop

Summary

A leading global materials company engaged in the manufacture and marketing of emulsion polymers and plastics, including various specialty and technologically differentiated products.

TSE is in a low gross margin (6% - 7%) commodity business. Sales declined 12% for 2012 vs 2011, and declined an additional 3% for 2013 vs 2012.

2014 started out with a 2% decline in sales for Q1 '14 vs Q1 '13. But TSE did show a profit for Q1 '14 of $17 million.

Based in Berwyn, PA, Trinseo S.A. (NYSE:TSE) scheduled a $180 million IPO on the NYSE with a market capitalization of $851 million at a price range midpoint of $18 for Thursday, June 12, 2014.

The full IPO calendar is available at IPOpremium.

SEC Documents

Manager, Joint managers: Goldman Sachs, Deutsche Bank Securities, Citigroup, Morgan Stanley, Barclays, BofA Merrill Lynch, HSBC, Jefferies

Co-Managers: Mizuho Securities, Scotiabank, SMBC Nikko, Wells Fargo Securities

End of lockup (180 days): Tuesday, December 9, 2014

End of 40-day quiet period: Tuesday, July 22, 2014

Summary

TSE is a leading global materials company engaged in the manufacture and marketing of emulsion polymers and plastics, including various specialty and technologically differentiated products.

TSE is in a low gross margin (6% - 7%) commodity business. Sales declined 12% for 2012 vs 2011, and declined an additional 3% for 2013 vs 2012.

2014 started out with a 2% decline in sales for Q1 '14 vs Q1 '13. But TSE did show a profit for Q1 '14 of $17 million.

82% of the IPO proceeds are allocated to paying debt, which would reduce interest payments by $11.5 million and increase quarterly profits by $1.6 million.

Adjusting for the after-tax effect of the debt repayment and annualizing Q1 '14, the P/E is 11.5. the price-to-sales ratio is .2.

Valuation

Glossary

Valuation Ratios

Mrkt Cap (NYSE:MM)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

Annualizing Q1 '14

Trinseo S.A.

$851

0.2

12.5

1.7

6.4

21%

P/E adjusted for debt repayment

11.4

Click to enlarge

Conclusion

The rating on TSE is neutral.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business

TSE is a leading global materials company engaged in the manufacture and marketing of emulsion polymers and plastics, including various specialty and technologically differentiated products.

TSE has leading market positions in many of the markets in which it competes. TSE believes it has developed these strong market positions due to its technological differentiation, diverse global manufacturing base, long-standing customer relationships, commitment to sustainable solutions and competitive cost positions.

TSE believes that growth in overall consumer spending and construction activity, increased demand in the automotive industry for higher fuel efficiency and lighter-weight materials, and improving living standards in emerging markets will result in growth in the global markets in which TSE competes.

In addition, TSE believes its increasing business presence in developing regions such as China, Southeast Asia, Latin America and Eastern Europe further enhances its prospects.

TSE develops emulsion polymers and plastics products that are incorporated into a wide range of its customers' products throughout the world, including tires and other products for automotive applications, carpet and artificial turf backing, coated paper and packaging board, food service packaging, appliances, medical devices, consumer electronics and construction applications, among others.

TSE seeks to regularly develop new and improved products and processes, supported by its strong patent portfolio, designed to enhance its customers' product offerings.

TSE has long-standing relationships with a diverse base of global customers, many of whom are leaders in their markets and rely on TSE for formulation, technological differentiation, and compounding expertise to find sustainable solutions for their businesses.

Many of its products represent only a small portion of a finished product's production costs, but provide critical functionality to the finished product and are often specifically developed to customer specifications.

TSE believes these product traits result in substantial customer loyalty for its products.

TSE has significant manufacturing and production operations around the world, which allows it to serve its global customer base.

As of March 31, 2014, TSE's production facilities included 35 manufacturing plants (which included a total of 83 production units) at 27 sites across 14 countries, including joint ventures and contract manufacturers.

TSE's manufacturing locations include sites in high-growth emerging markets such as China, Indonesia and Brazil. Additionally, as of March 31, 2014 TSE operated 11 research and development ("R&D") facilities globally, including mini plants, development centers and pilot coaters, which TSE believes are critical to its global presence and innovation capabilities.

Seasonality

Quarterly results of operations are subject to fluctuations due to the seasonality of the business.

Seasonal changes and weather conditions typically affect the construction and building materials end markets.

In particular, sales volumes for construction and building materials generally rise in the warmer months and generally decline during the colder months of fall and winter.

Abnormally cold or wet seasons may cause reduced purchases from our construction and building materials customers and, therefore, adversely affect our financial results.

However, because seasonal weather patterns are difficult to predict, TSE cannot accurately estimate fluctuations in quarterly construction and building materials sales in any given year.

Because of the seasonality of the business, results for any one quarter are not necessarily indicative of the results that may be achieved for any other quarter or for the full fiscal year.

Dividend Policy

No dividends are planned.

Intellectual Property

TSE owns over 250 patents and has over 200 pending patent applications in various jurisdictions throughout the world covering processes and technology such as material formulations, material process technology and various end-use industrial applications for its materials.

Competition

TSE's principal competitors in its Synthetic Rubber segment include Asahi Kasei Corporation, JSR Corporation, Lanxess AG, Zeon Corporation, Versalis S.p.A and Synthos S.A.

In its Synthetic Rubber segment, TSE competes primarily based on its ability to offer differentiated products, the reliability of its products, the quality of its customer service and the length and depth of its relationships.

5% stockholders

Bain Capital Everest Manager Holding SCA 100%

Use of proceeds

TSE expects to net $161 million from its IPO. Proceeds are allocated as follows:

To redeem $132.5 million in aggregate principal amount of indebtedness under its 8.750% Senior Secured Notes due 2019 at a redemption price equal to 103% of the principal amount plus accrued and unpaid interest through the redemption date.

The remaining proceeds will be used to pay fees and expenses associated with this offering and for working capital and general corporate purposes.

Disclaimer: This TSE IPO report is based on a reading and analysis of TSE's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.