Ingevity: Carbon Future At A Record Discount

Summary

• NGVT has been severely battered by the market and slipped close to an all-time low.
• That happened as investors priced in revenue growth deceleration as a direct consequence of turmoil in its end-markets.
• I believe an around 6.9x EV/2020 EBITDA signifies the 2020 sales contraction has already been priced in.
• I expect the company to return to single-digit revenue and double-digit EPS growth in 2021-2022.

Ingevity Corporation (NYSE:NGVT), a performance chemicals company, has seen its share price incessantly sliding since April 2019. Amid the recent coronavirus pandemic-induced sell-off, the stock price plunged close to the 2016 spin-off level.

Meanwhile, the stock price slump by no means signifies the deep merits of this carbon market player are no longer relevant. With ~6.9x EV/2020 EBITDA, I believe the stock is cheap and might be worth considering by the GARP-oriented long-term investors even despite bleak 2020 prospects hamstrung by the global economic crisis. Also, consistent insider buying in March hints the company's executives consider the stock is oversold.

The top line

NGVT is an established and gradually growing specialty chemicals industry player with a leading position in a few end-markets like the automotive. Its versatile and complex portfolio encompasses the Performance Chemicals (Pavement Technologies, Oilfield Technologies, Industrial Specialties, and recently established Engineered Polymers) and Performance Materials (Automotive Technologies, Process Purification) segments. One of the company's key sources of revenue is hardwood-based carbon products (e.g., granular and pellet activated carbons).

The PC segment is the principal contributor to the top line with $802 million in 2019 revenue, which is more than 1.6x higher than $490.6 million brought by Performance Materials. A remark worth making is that both segments heavily depend on North American customers. For instance, the PC segment generated 67.3% of 2019 sales in the region, while the PM division's revenue in North America was 52.1% of the total. Put another way, an after-pandemic sales rebound depends more on the pace of economic recovery in the U.S. than on the recuperation of the Asia-Pacific and European economies.

One of the principal revenue growth drivers of Ingevity's carbon business is tighter regulatory emission standards, which spur demand for complex gasoline vapor emission control systems and, in turn, demand for carbon products. According to

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.