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7 Reasons To Buy Trinseo Here And Now - The Nuances And Details From The Earnings Call

May 07, 2020 1:36 PM ETTrinseo PLC (TSE) Stock68 Comments
Prati Management profile picture
Prati Management


  • While COVID-19 has created fear, uncertainty and doubt with investors, it has also presented "once-in-a-lifetime" buying opportunities unlikely to last long.
  • Investors often lump all stocks together as "the market" claiming the market is too high and will "retest the lows." Perhaps true for Large Cap and Growth,but not value.
  • Polycarbonate will prove to be a huge new opportunity for Trinseo as retailers and restaurants will have to retrofit to accommodate for social distancing. PVH and others have already confirmed this.
  • Trinseo just reported their quarterly earnings and hosted a call for investors. The tone was clearly positive and the numbers compelling.
  • This story is both misunderstood and generally neglected by the sell-side, as indicated that there is not a single "Buy" rating and "group-think" is prevalent. This appears as though it is about to change.

This is an exceptional story and all signs are present that we are at the beginning of a multi-year run for Trinseo.

Following a multi-year downturn, Trinseo was poised for a new cycle, enhanced profits and improved execution. With a new 20%+ activist shareholder, a restructured management/executive team, and streamlined business units, Trinseo was seeing the improvement in their business, and the upcoming cycle that industry executives with decades of experience have seen play out repeatedly in the past. And then the COVID-19 hit and pulled indexes down a quick 30% from recent all-time highs earlier this year. But TSE, was already down from mid-$80s to $30 (about 65%), before losing 50%+ down to the mid-teens. Hence, when pontiffs and financial prognosticators were ranting about the massive 30% pullback, and many then saying that the market needs to go lower, and that 30% is not enough to reflect the downturn of the economy, I might agree. But for some sectors, many chemical companies and TSE in particular, when it is already down more than 80% from the 2018 high, it seems pretty clear that a lot of bad news is baked in. In the case of TSE, it is absurd, and simply misunderstood. I have written several detailed articles on TSE (Trinseo Trading with Maximum Fear and Narrowing the Focus - TSE) and commented extensively on news items for TSE, but with the earnings call completed, I would urge serious investors to either listen to the call replay or at least read the transcript. The update is compelling and should remove any anxiety investors might have about buying a big position in TSE.

These are the primary takeaways from the TSE call from May 7, 2020, and could appropriately be called:

"7 Reasons to buy TSE now."

  1. Beat the Quarter

This article was written by

Prati Management profile picture
Richard Prati has nearly 40 years of equity analysis and investment experience and spent nearly 20 years on Wall Street in various positions including the co-founding of American Technology Research and ultimately selling the company in 2008. Experience in public and private global equity analysis and investing. BS in Economics from Vanderbilt and MBA from the University of Rochester.

Analyst’s Disclosure: I am/we are long TSE. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (68)

Prati Management profile picture

Covestro pre-announced AGAIN for Q3 and the implied guide for Q4 is another 20% upside to consensus. Polycarbonate surprising significantly to the upside with margins up 400 bps quarter over quarter, while street is modeling down margins for TSE in polycarbonate business. Not only are the auto-related businesses for TSE surprising to the upside but the polycarbonate business is continuing to accelerate to the building of separating shields at every retailer and many restaurants around the world.
Prati Management profile picture
TRINSEO UPDATE for June 04, 2020

The UBS Chemical Team Wrapped up an Investor Call this Morning (6/4/2020)

Primary Points from the call:

1.) UBS just finished hosting a conference call for their institutional investors saying real-time data for chemicals is better than expected.

2.) The main theme in chemicals that UBS recommends investors to play is the fact that due to COVID-19, more people want to avoid public transportation/ Uber, etc. and drive more in individual cars.

3.) What is the best play on higher miles driven? Trinseo. Since Lanxess sold its rubber business to Saudi Aramco, Trinseo is best-levered rubber play for exposure to increasing individual miles driven. There was another rubber company, “Synthos” but it was taken private. This makes Trinseo the only game in town for investors looking to play this trend. Their synthetic rubber business did $137mm when the market was healthy. Expectations are for $25mm. One can see there is a disconnect here.

Remember, investors move into large-cap stocks first. For example, quality large-cap such as DOW move first despite their being less overall upside. For investors seeking liquidity, it is the quickest way for exposure to the sector. As the market has now bounced a lot and most people have missed it, they need high beta to catch up. TSE is still down around 40% YTD while the market is back close to flat. TSE is still down nearly 80% from in 2018 high. Trinseo's end markets are already looking better than what analysts and investors were expecting. TSE will provide the high-octane for investor portfolios from this point.
Prati Management profile picture

As I have received a ton of questions on TSE, and how a big firm like Morgan Stanley could downgrade to a SELL, I am posting this on my TSE-related articles so that those following the name can view my analysis and better understand the issues. I reiterate that TSE is my TOP PICK and very high conviction. Bottom line – I think the Morgan Stanley research report is weak, agenda-driven, poorly researched, uses specious reasoning, flawed logic, and simply gets the math wrong. I think it is an embarrassment to their firm, and as the stock performs, it will become obvious to those following TSE what the agenda was.

I went through the 65-page MS report, written by Angel Castillo, last night in detail for the second time. His argument is really all about the styrene market being oversupplied, everything else is kind of backfill. His call on styrene is that all this capacity is coming on in China (which we knew about and discussed), but that this time the high-cost producers won’t shut down to offset it. He has no data or argument for why (he cites 13% import tariffs from the US, but this is irrelevant as the US doesn’t export much styrene to China anyway, and even if they did, all these tariffs do is change trade flows (US export to Europe and Europe exports to China without a tariff). So basically he is saying, despite the evidence we have to the contrary, (high-cost plants shutting now) this will be different in the future.

Economically, this makes little sense...be that as it may. Mr. Castillo actually shows how utilization for polystyrene is going up (which is true) but he assumes the polystyrene earnings are flat (so styrene profits down because of lower utilization but polystyrene profits don’t get the benefits of higher utilization). For all the other divisions, he basically assumes very little recovery in earnings to justify his sell case (even though we have plenty of data to support the opposite). To me what is most interesting is that his entire case is based on something that has already happened – styrene profitability is already at marginal cost. This is because a lot of the supply has already come on while demand has been weak due to COVID. He has this long report on why oversupply is such a problem but then he shows that in fact, styrene earnings are ALREADY negative and he has them very slowly recovering from losses to break even. He assumes ZERO shutdowns of capacity outside of the TSE plant in Europe. He ignores the boost to profitability for TSE from closing the plant (even though we know it lost a lot of money last year and more in Q1 2020).

Mr. Castillo also ignores the fact that the hit to EBITDA in 2020 from the oil crash will not happen again in 2021. In 2020 there is a $65 million hit to EBITDA from revaluation of raw materials because of the oil crash. Unless you assume oil will go back to the lows and then have a similar crash next year, which would basically take it to zero, in 2021 you will have a tailwind by the absence of this $65 million hit even if crude prices had stayed where they were at the end of Q1 (Brent crude was 22 dollars per barrel on March 31). Since crude has actually already recovered to $35 as of today, not only will you not have this hit, but you will in fact have the opposite effect in the income statement. This is very high level but if crude going from $60 to $22 caused a $65 million headwind, crude just going from $22 to $35 should give TSE a $22 million tailwind (65/38 * 13). This means that if oil stays where it is, 2021 EBITDA will be helped by the absence of the $65 million hit plus the $22 million positive, for a total tailwind of $87 million. The Morgan Stanley analysis just ignores this.

In addition, he ignores the fact that as styrene profitability stays at break-even, CAPEX will go down, boosting free cash flow. I think what will happen is that the rest of the business will recover, and the styrene business will recover somewhat as there are some shutdowns as we are currently seeing. As oil pricing continues to recover, not only will you not get the hit to EBITDA from raw materials timing, but you will actually get a boost to EBITDA (double-positive as the negative impact goes away and then you get a positive impact on top). This means that EBITDA will recover to about $450 million over the next 18 months and then gradually get the lost $100 million from styrenics over the following 2 years. While many investors were spooked by this MS report, I think the company will start exceeding numbers significantly starting this quarter, and people will forget about the Morgan Stanley SELL report, and TSE will head much higher, and inflict a great deal of pain on those are short the stock.
TSE daily average volume so far - 600,000 shares.
Last Friday's volume - 3.08 million shares (5x of normal volume).
Share price gain ~ 8%
After Steve Grasso's comments on CNBC regarding the stock. Why is it that Steve's comments, and several of the names in his portfolio, are so close to Prati Managements?
Prati Management profile picture
Somebody on CNBC has to have good ideas once in a while if only by the law of averages. Intellectually, Grasso appears to be a standard deviation (or two) to the right vs. most of the other pundits. What is that expression about "great minds..."? Besides, isn't it a good thing that one of the experts on TV picks something besides AAPL, AMZN, FB, MSFT, GOOG, NFLX (or some other megacap tech stock)?
I am not going to be upset or suspicious whatsoever if a somewhat small-cap unknown stock, in a sector that most of the financial news pretty much ignores, finally gets some press...

there are thousands of stocks out there with potential... but most are ignored while "they" talk about the same names and themes over and over... "tech" "renewable energy" "esg" its gets so tiresome, I really do not watch the financial channels any longer for that reason...

I am grateful for Prati, and other people on this website who bring some of these ideas and tickers to my attention...

then I can decide for myself if I should buy, or not...

this is NOT bragging in any way, so please do not take it that way, but in the last 8 - 10 weeks, I am up 85% on MPC, 56% on AROC, and 22% on TSE... all ideas from this website, and ideas I most likely would not have found myself in a timely fashion, at great valuations, amid the coronavirus chaos.

good luck to all, and thanks for the investing ideas.
Well written article. Thanks. Could you please clarify the polycarbonate business? What regions? Potential growth? Cheers.
Seems like a big part of the cash flow thesis rests on the Sytrenics JV, which has been incredibly *almost absurdly* profitable (margins, ROE) over the last 5 years, sending lots of cash back to parent. You say that Styrenics is at trough-ish levels.. and it is vs the last 5 years.

But why can't the JV return back to 2010-2014 levels when gross margins were ~4% and it broke even or lost money in some years ?

What changed so much in the structure of the market that the JV saw profits quadruple? Industry styrene uptime levels were ~84% in 2013-2014 (similar to 2019) yet it was doing 40-50m in net profit then, not 200+, so that doesn't seem to be the answer.

Similar question on the other segments. You've estimated normalized EBITDA by segment (and eyeballing it, it looks like roughly 5-year averages), and it does seem like almost all segments are below-cycle vs. the last 5 years. But of course that doesn't include an economic downturn - why not look at normalized margins including 2008-2009? Seems like many of segments have continued room to fall (and now with Covid, will almost assuredly fall), below your original "trough" numbers.

I agree with using full cycle #s on a cyclical chemical company but not sure looking at 2014-2019 captures that. And ultimately, the story looks very different if Styrenics goes back to breakeven...

Appreciate the post.
Prati Management profile picture
@AnonValueInvestor – As a new user and first-time commenter to Seeking Alpha, welcome. I am delighted to be the author of the article for which you posted your first comment. As I read through your questions, I think it makes sense to break it down into 4 parts – (1) Styrenics assumptions and background? (2) trough numbers overall – could they go lower, and what about full cycle? (3) COVID-19 and its likely and potential impact, and lastly (4) A general why here and now when one might think the numbers could go further south. Let’s go through it.

(1) Styrenics JV. Profitability in styrenics has structurally changed since 2010 as all the new supply has been on purpose styrene monomer supply. Before 2010 styrene supply was all a by-product of propylene oxide styrene monomer plants, where styrene is merely a by-product of the propylene oxide production. Since propylene oxide was very profitable, people built POSM plants even when styrene margins were low or loss-making. Since 2010, all the supply has been purpose-built styrene plants in which are higher on the cost curve, even in the current environment when PO demand is weak. The on purpose capacity is actually loss-making as you have as over 10% of it now coming offline. The POSM supply base is struggling because propylene oxide is oversupplied so they can barely make money with POSM plants – actually, you have seen some POSM plants running at lower rates recently, partly helping the styrene spreads since the trough in Q1. The outlook for PO is worse than for styrene when it comes to demand, so you may actually have POSM capacity coming off too which would help styrene further. Secondly, Amsty is fully vertically integrated into polystyrene which is a marker with a very positive supply-demand outlook. 7% of PS capacity just came out of the European market early this year.
(2) My trough earnings are actually lower than 08 / 09 given the change in the mix. If you look at latex, they did 127 million in EBITDA in 2008 and 115 million in 2009. In 2019 they did 80 million. Yes, they have lower volumes today as the mix is moving away from lower margin graphic paper. While percentage margins were 120% lower in 2008, EBITDA per ton was higher (top line in 2008 was inflated by much higher crude prices). Synthetic rubber was 28 million, which is lower than the 41 million in 2019, but the mix was very different with a much bigger portion being structurally higher-margin SSBR than commodity ESBR today than back then. Volumes are also higher now as they have added capacity. If you look at it like-for-like, we are the same trough on an EBITDA per ton. Performance plastics is hard to compare as the business has been significantly restructured, including exiting the US polycarbonate market while growing a number of higher margins downstream products. Back in 2008, the cost structure for this business was very different as it was owned by Dow Chemical. My estimate is that like-for-like this business did 110 million, which is 20 million lower than in 2019.
(3) COVID-19 makes everything more challenging to calibrate. Beyond the distressed valuation, TSE sells into end markets that will be helped by Covid with the exclusion of the auto end market. Both the tires they make and the performance plastics they make are highly leveraged to EV (like 3x as much content in EV car as opposed to petro engine). Even if you take the view that more people will work from home and that new car sales will be lower, this will be more than offset by the ramp in EV cars.
(4) I am trying to help you gain a comfort level with my assumptions, model, numbers, and estimates, but in the end, you need to do your own work to have the conviction and comfort I have with the scenario and thesis I have shared. People ask if this could be a value trap, or could go much lower. I have considered it carefully. I don’t think so. The company pays a 9% dividend and has reduced the share count through stock buybacks from 49 million shares to 38 million in 4 years. Despite lower earnings now, because the stock is so much lower they can actually buy back a lot more stock per year. Even using the historical number, that is almost a 17% cash return per year when you factor in the dividend plus the buyback. I think this is pretty good while you wait for the stock to revalue. I cannot understand the fear of investors when it comes to stocks like TSE. I have run through the worst-case/trough scenarios and cannot find a company with more upside and a better risk/reward profile. Thus, my confidence is high, and I am “all-in.” Good luck and hope that helps.
Prati Management profile picture
from CLF's conf call on autos - (They make iron ore which goes into steel).

"Our 2020 Adjusted EBITDA performance and capital needs will be dependent upon the strength and speed of the recovery of our important end-markets through the balance of the year, most notably the automotive industry. Although the pandemic effect led to automotive plant shutdowns over the past six weeks, the timing and pace of production restarts, as well as consumer sales data, have both exceeded our expectations. If the automotive manufacturers continue to restart production as they have indicated to us and already started to do, our operations will normalize throughout the balance of Q2, with a fairly strong H2 of the year."
VladPutin profile picture
Great follow up article. I listened to the call and agree with you. Management is positive. At least they are as upbeat about their opportunity as anyone can be in an uncertain environment. Thanks for the cash flow explanation. Prati, many of us have made money with you for years, and Trinseo was a great call the first time. The only thing you could have done better but recommend shorting TSE at $80! The stock has been a great short for nearly two years, and with the stock down nearly 80%, you jump in and say buy. I am from the same school of buy low and sell high. Take it from me - you can’t trust anyone with “Stalinist” in his name. Love the way you have listed and lined up the facts. Insider buying. China, and S. Korea business picking up, and companies that are validating it. Cheap, great dividend, and a new cycle in front of them. The pendulum always swings too far, right comrade? Stock was probably rich in the $80s, and way too cheap in the teens. Nobody will care whether they bought at $18 or $22 when the stock is $100! It will be inconsequential as a percentage! I have seen you reply very nicely and in great detail to investors who ask real questions and bring up interesting points. For the new guys who attack your analysis, who clearly know very little and are disrespectful, you are a patient guy to even reply. For the Bolsheviks, you should ignore them as they are not helpful. Many of your readers appreciate the analysis and excellent articles you provide free of charge.
I was introduced to this company after reading one of your previous article. While there is certainly a case for buying the stock at this time, some of what you write in this article seems totally of touch with reality.

1. TSE certainly did not beat the quarter. The results were simply bad. Even after removing the impairment charges they still came up short of the 0.07$EPS expected by analysts.

2. I did listen to the earnings call. Management is far from “extraordinarily bullish” and you are either twisting or misunderstanding what was said. They have reported the month of April to be an absolute disaster regarding orders from the automotive sector, seeing decreases of 60% for April. The sequential improvement in orders for May, June would still bring Q2 to 50% y-o-y decrease overall in that segment. This is coming from their mouth BTW. You pointed in your article that your followers should listen to the earnings call instead of listening to the sell side. I would agree and I urge you to listen to it again as well.

3. Balance sheet is reasonably tidy that much is true. FCF for Q1 was negative though. Q2 will most likely be as well. Seeing we are at the start of a major worldwide recession and that a significant portion of their segments will not do well, can the increased margins on styrene, sales in the medical field and food-packaging segment compensate for the rest? Possibly but its far from a sure thing. Management themselves are saying that they cannot provide guidance and that things will depend on a potential recovery.

4. Yes, dividend seems safe for this year thanks to the tidy balance sheet and the fact that it’s probably the only thing keeping the stock price from falling apart further until the world gets back to a recovery. They will certainly do all they can to keep the dividend intact and this is my main reason for holding the stock.

As a summary:

Overall, we have a decent balance sheet, a significant and (most likely) safe dividend and they have a nice track record of being able to make money in a healthy economy. All together this makes it somewhat suitable to buy at these levels. However I find it very misleading to your readers to paint a picture of a super high quality company destined for an imminent turnaround and misunderstood by everyone and every analyst except yourself. There clearly is no imminent turnaround for them in this environment and it will most likely take a while before you see a significant improvement in results. If you are happy to wait and collect the dividend in the meantime go for it. But I would certainly urge everyone to dig deeper before deciding for yourself what sort of amount you find appropriate to allocate to TSE.
Prati Management profile picture
@Anarcho-Stalinist Capital - We obviously disagree on pretty much everything. Most of your points have been addressed in other articles. And your suggestion that "consensus" earnings was missed is erroneous. And yes, the sell-side clowns are clueless. Most are just trying to NOT be fired so they try to gravitate to non-calls. (Translated - don't make any controversial calls.) I am skeptical you are an owner and would not be surprised if you are short and want to create doubts in others. If you want to debate factual issues, no problem. If you want to question my assumptions and try to poke holes, feel free. But let's not focus on petty issues or language. I have done very thorough analysis, and I have known the company and space for years. When TSE rips to the upside, and you wish you owned it (or bigger), remember you are missing the entire point. You are focused on semantics, nonsense, and expectations vs. what matters - EBITDA / CASH FLOW. As I re-read your comments, many are completely nonsensical. "thanks to the tidy balance sheet and the fact that it’s probably the only thing keeping the stock price from falling apart further until the world gets back to a recovery" - are you kidding me? This is a real business and a real company with solid management. It is clear to anyone paying attention that Q2 will be the trough for TSE and the market is a discounting mechanism. Autos fell off a cliff in March. Europe and China are already coming back. The valuation is absurd and TSE will make investors an enormous return. Good luck to you.
How long have you been saying that (current quarter) is the trough in TSE? Q2 will be fucking brutal I really want to hear an analytical argument as to why sales can just snap back to peak numbers as soon as the auto industry restarts
Right… I am the one focused on semantics and nonsense. However you are not addressing anything of what I mentioned above in any detail. Simply accusing me of secretly being short the stock, which by the way is absolutely laughable and embarrassing. As if 2 more or less insignificant participants on SA in the comment section could make a difference to the direction of the stock price.

The points I mentioned seem very factual to me. This quarter was bad and is showing a negative operating profit. The conference call was far from “extraordinarily bullish” and management is word for word guiding for a 50% decrease year over year in automotive sector. FCF is negative for the quarter and could be negative for the year. Meanwhile you write pretty much the total opposite.

Your reaction actually would indicate that you are the one with an agenda. Or maybe you are just fond of using hyperbole and exaggeration when discussing your stock picks. The problem is that you are very convincing and a casual reader without tons of time to dive into the company could be mistaken as to what the real situation is.
Little, Einstein profile picture
Good article
498 bill profile picture
I have been buying what I can afford of tse, oln, and wrk each week since your two most recent articles concerning these companies came out. I will continue to buy. Very informative! Thanks for the update!
Chris Valley profile picture
!!!My mom bought 500 shares in Trinseo!!! She also sewed 500 masks for the next town over that has 500 virus cases. And she raised 1000 dollars for the foodbank.

I am selling the Aug 15 puts in Trinseo.

And the 10,11,12 puts in Olin.

Long chemical engineering.
Chris Valley profile picture
Ok, fine...now, I'm selling the AUG 9 strike in the OLN as well.
M & G with their 20% positions. You notice MEOH PM?
Thank you for the follow-up article on TSE.
If S&P falls below 2400 levels - Where do you see TSE, OLN, WRK, DOW & HUN?
Prati Management profile picture
@Invest_2020 - Great question and this is VERY IMPORTANT. I think the S&P is very likely to fall below 2400. I think we will see a massive transition from growth to value. We have seen it so many times in past cycles when we had a market implosion. The S&P represents large-cap, where people feel safe due to liquidity. People also want growth. While most investors were getting killed, Pershing Square (Bill Ackman) was up 15%. He bought some large-cap names that bounced huge. Eventually, buying AAPL, AMZN, FB, MSFT, GOOG, NFLX, TSLA etc. won't work always. Five of the names represent something like 20-25% of the S&P. Are people going to spend as much time on FB and NFLX when COVID-19 calms down and people get back to work? I used to like growth and story stocks, and there are places for those companies in many portfolios. Now, we have had a crazy 12-year bull market, a once-in-a-lifetime pandemic, and a big correction. But the biggest correction was in the smaller cyclical names. These names now represent DEEP VALUE. So, names like TSE (and the others) will generate so much free cash flow over the next few years, that it does not really matter what analysts think. TSE with a 9% yield will generate so much FCF that they could do a massive share buyback. OLN has been around for a century and never missed a dividend. Bottom line, I want to see and expect to see massive capital appreciation from these names and soon. At the same time, as new leadership names emerge, I suspect we will no longer see underperformance in the small-mid-cap value names, and we will begin to see a rotation out of growth and into value. If I am wrong, the stocks are already near historic low valuations and I can collect a very nice dividend in a zero-interest rate environment. If the stocks I like rip to the upside, I will make a great return, and collect dividends the entire way up. Thus, do not despair if the "index headlines" correct again, and we see massive selling in the big cap and growth areas. If we own quality names that are dirt cheap, viable, and good businesses with good managements, we will do very well. So the S&P closed at 2881 today. If it pulls back to 2400, that is a 16-17% sell-off. I believe the list - TSE, OLN, WRK, DOW, HUN will all be at substantially higher levels than they are today, and will show tremendous outperformance on a broader market pullback.
Once again, thank you for the very detailed response. The only thing that was stopping me so far buying in to these equities is current index levels....I will start accumulating all 5 of these stocks.
Chris Valley profile picture
Precisely: it is a size thing.

ALL of those huge Trillion Cap stocks could trade at 500 billion...And it would still be a fair price. And I own them all too.

But the smaller market caps under 10 billion or so...the values can only compress so much. And most of them did compress a lot. So the healthy companies will be perfectly fine going forward with cash flow.

The stocks that had a brush with 10 Dollars--those are gunpowder.
Thanks for the article. I was waiting for it..I will continue to add..
Anuj Kumar profile picture
Do their underlying products correlate with price of oil?
Prati Management profile picture
@Anuj Kumar - Great question. The weak oil prices benefitted TSE, but they were beaten worse than the chemical companies in which soft oil actually does hurt. TSE competes with some of the Chinese companies that utilize coal. Nevertheless, it seems very clear that Q2 is trough, and numbers will head higher for back half of the year. With zero buys, and it established this is a well-hated company by the know-nothing sell-side, this is the opportunity. I suspect we will see upgrades for TSE coming.
Anuj Kumar profile picture
I thought a lot of their products have look through commodity prices so it usually hurts them? Or is it neutral long term since it's just passed through. I think I remember reading that very low or very high oil prices starts to negatively affect them but generally they trend with oil while it trades in a "normal range". I plotted WTI vs TSE from the end of 2015 (while oil was "normal") and you could see it track reasonably well.
DhunterChapy profile picture
OLN has not been performing will lately, to you still like them just as much or has there been some material change?
Prati Management profile picture
@dhunter3759sa - OLN has been painful. We had such a nice bounce from below $9 back in March to $16 by late April, and now back at $11. This is a great second chance for investors who might have missed it. Very simply, investors freaked out over a debt covenant that could become an issue in a couple of months. That said, management has been clear that they will address this prior to the debt covenant becoming an issue. OLN was very clear that they will not cut their dividend, nor do they need to. I would bet we see a press release within the next month announcing that OLN has addressed the covenant issue, and we should see a very big relief bounce for the stock. Between the bots, and algos, and some managers who just know very little about the companies and businesses, we get some crazy moves. So, TSE still is my favorite name here. OLN is second. WRK is very close. Let me know if you need more color or details. Hope that helps.
awisecpa profile picture
Prati, what are your thought on the OLN 9.5% $500MM notes? That’s a bit scary to me. I just refinanced my house for 3%!
Prati Management profile picture
@awisecpa - I understand in today's ultra-low interest rate environment that it might seem high, but it is inline for a cyclical high-yield issue. It is really just an insurance policy. The world is different than it was a year pre-COVID, and I would rather see management err on the safe side of having a larger cash cushion than risk any potential shortfalls or covenant violations if the world faces another black swan or another notch down in economic or consumer angst. Right now, the money is available. I suspect in six months from now, OLN won't need it, and things will look much better. But in case conditions deteriorate, it is good to know OLN will have ample capital. With the amount of cash flow OLN will generate when things turn, I think the notes will seem minor and a good insurance policy in retrospect.
I bought this at 16.79
Had been watching it on your recommendation from a previous article. When she dropped i jumped after i saw it head back up some. Wish I bought more!
Really like the company and analysis. Just can not pull the trigger now. Need to see a little more light on future expectations. Q2 will be very ugly and who knows about Q3. Just see more opportunity in other names before this one. I am ok missing the first 10-20% up on this name as when it turns it could be 50-100% up when ready to shine.
Total number of days TSE traded below current price of $19.04 = 23 days
Total number of days TSE closed in the price range $14.63 to $17 = 6 days
Total number of days TSE closed in the price range $14.63 to $16 = 2 days
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