Superior Plus does a bit better
On October29,2015 Superior Plus, a supplier of energy and chemicals, released their third quarter results.Their earnings were $.20 versus $.18 in the same quarter last year.But Superior Plus advised shareholders that it was moving ahead on it's proposed acquisition of Canexus, another chemical producer.Superior Plus also announced that it had issued 14 million new shares at $10.39 per share for proceeds of $138 million.Their guidance for 2015 will be still be met;they intend to earn $1.65 to $1.85 per share after restructuring charges.
The Acquisition
Superior Plus produces three products mostly- propane,sodium chlorate and hydrochloric acid;it also has a small construction division.These are all in slow growing markets and SPB's revenues and earnings would have slowed until they made new investments.But instead they decided to make an acquisition of another chemical producer.Canexus produces much of the same products from three plants in Canada and one in Brazil.The total value of the acquisition would be about $316 million with an enterprise value of $932 million;the deal will close on the first half of 2016.Superior Plus will have to raise some debt and this will raise their debt to EBITDA ratio after they have worked hard to reduce it.SPB also expects that the acquisition will reduce it's earnings.Superior Plus uses adjusted operating cash flow (AOCF) as it's measure of performance.AOCF will be $1.65 to $1.85 for 2015 and expects $1.50 to $1.80 for 2016.The acquisition will reduce AOCF for 2016.
Non-core Assets
At this time Superior Plus expects that earnings (AOCF) will be lower not higher after the acquisition of Canexus.But Superior Plus needs to do some industrial engineering.Most of it's plants are performing below capacity as are the plants of Canexus.Their production must be combined in the same plant and in the case of sodium chlorate production and maybe chlor alkali a plant should be sold.There are two plants in Brazil but only one should be kept to supply a secondary market; however there should be some rationalization of production.There should now be bigger discounts available from suppliers.And the cash obtained from the sale of non-core assets should be applied to reduce debt.It appears that there are several options open to increase earnings and reduce debt in 2016 not the other way around.Superior Plus looks better in 2016 not worse but it still must find new products to produce from their plants as some of their markets are mature now.
The Acquisition
Superior Plus produces three products mostly- propane,sodium chlorate and hydrochloric acid;it also has a small construction division.These are all in slow growing markets and SPB's revenues and earnings would have slowed until they made new investments.But instead they decided to make an acquisition of another chemical producer.Canexus produces much of the same products from three plants in Canada and one in Brazil.The total value of the acquisition would be about $316 million with an enterprise value of $932 million;the deal will close on the first half of 2016.Superior Plus will have to raise some debt and this will raise their debt to EBITDA ratio after they have worked hard to reduce it.SPB also expects that the acquisition will reduce it's earnings.Superior Plus uses adjusted operating cash flow (AOCF) as it's measure of performance.AOCF will be $1.65 to $1.85 for 2015 and expects $1.50 to $1.80 for 2016.The acquisition will reduce AOCF for 2016.
Non-core Assets
At this time Superior Plus expects that earnings (AOCF) will be lower not higher after the acquisition of Canexus.But Superior Plus needs to do some industrial engineering.Most of it's plants are performing below capacity as are the plants of Canexus.Their production must be combined in the same plant and in the case of sodium chlorate production and maybe chlor alkali a plant should be sold.There are two plants in Brazil but only one should be kept to supply a secondary market; however there should be some rationalization of production.There should now be bigger discounts available from suppliers.And the cash obtained from the sale of non-core assets should be applied to reduce debt.It appears that there are several options open to increase earnings and reduce debt in 2016 not the other way around.Superior Plus looks better in 2016 not worse but it still must find new products to produce from their plants as some of their markets are mature now.
Comments
Post a Comment