Ubben’s Inclusive sees opportunity to boost value at Dutch chemical maker and help the environment


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Firm: OCI NV (OCI-NL)

Enterprise: OCI produces and distributes hydrogen-based and pure gas-based merchandise to agricultural, transportation, and industrial clients. It operates by way of the next segments: Methanol U.S., Methanol Europe, Nitrogen U.S., Nitrogen Europe and Fertiglobe. The corporate gives anhydrous ammonia, granular urea, urea ammonium nitrate answer, calcium ammonium nitrate, ammonium sulphate, aqueous ammonia, nitric acid, urea answer, bio-methanol, methanol, melamine and diesel exhaust fluid, in addition to different nitrogen merchandise. OCI additionally owns and operates an ammonia terminal on the port of Rotterdam. The corporate has operations in Europe, the Americas, the Center East, Africa, Asia and Oceania.

Inventory Market Worth: ~6.3 billion Euros (29.93 Euros per share), in keeping with FactSet

Activist: Inclusive Capital Companions

Share Possession:  ~5.0%

Common Value: n/a

Activist Commentary: Inclusive Capital Companions is a San Francisco-based funding agency which companions with corporations that allow options to handle environmental and social issues. Based in 2020 by Jeff Ubben, who beforehand based ValueAct Capital in 2000, Inclusive seeks to leverage capitalism and governance in pursuit of a wholesome planet and the well being of its inhabitants whereas creating long-term worth for shareholders. As a pioneering activist ESG (“AESG”) investor, Inclusive seeks long-term shareholder worth by way of energetic partnership with corporations whose core companies contribute options to this pursuit. The agency’s main focus is on environmental and social worth creation, which ends up in shareholder worth creation.

What’s taking place?

Inclusive despatched a letter to Nassef Sawiris, govt chairman of OCI, expressing the agency’s perception that OCI is price roughly 90% greater than its present inventory value and calling on the board to discover strategic choices to unlock the corporate’s worth.

Behind the scenes

The vast majority of OCI’s enterprise pertains to fertilizer for agricultural functions and different nitrogen merchandise with roughly 12% of income generated by way of methanol gas merchandise. This enterprise does $9.7 billion in income and $3.6 billion in earnings earlier than curiosity, taxes, depreciation and amortization. Nonetheless, the chance here’s what the long run brings.

OCI is presently embarking on a $1 billion growth of the most important blue ammonia facility in america positioned in Beaumont, Texas. It is going to be a state-of-the-art facility on the forefront of blue ammonia manufacturing and is predicted to come back on-line in 2025 and produce 1.1 million tons of blue ammonia yearly. This facility will mix nitrogen with blue hydrogen to create blue ammonia. It’s thought-about “blue” ammonia as a result of the carbon emissions produced from the hydrogen manufacturing course of are captured and saved. Blue ammonia has quite a few product functions in OCI’s current product traces as a sustainable and low carbon enter for fertilizer, gas and feed. Furthermore, liquefied blue ammonia might be bought domestically or shipped to OCI’s ammonia import terminal within the port of Rotterdam, as they see European demand for hydrogen and ammonia as a significant progress space fueled by the vitality transition and decarbonization.

Due to the not too long ago enacted Inflation Discount Act within the U.S. and carbon taxes in Europe, the manufacturing of blue ammonia may have a number of monetary advantages. First, the IRA elevated the tax credit score for every ton of carbon saved to $85 per ton, up from $50. OCI’s plan will produce 1.1 million tons of ammonia that generates 1.7 million tons of carbon, just about all of which is captured and saved. Second, this blue ammonia might be bought by way of an ammonia terminal on the port of Rotterdam that OCI owns and operates. As a result of it’s low-carbon gas, it won’t be topic to the $100 per ton carbon tax on competing merchandise, permitting OCI to promote at a market value and reap an extra $100 per ton of margin. That is anticipated to result in $350 million of annual EBITDA from the $1 billion of capex required. Furthermore, ammonia is simpler to ship than hydrogen as a result of it may be transported at a temperature of  -33°C versus -253°C for hydrogen. For these causes, blue ammonia can function an vital supply of decarbonized hydrogen, is poised to be a big a part of a inexperienced vitality future, and it has a number of secular tailwinds.

Inclusive believes that OCI’s methanol enterprise, mixed with its low carbon ammonia challenge in Beaumont, has vital strategic worth and will generate curiosity from massive vitality gamers seeking to speed up their vitality transitions. As a reference, Inclusive cited BP’s acquisition of biogas producer Archaea Vitality for $4.1 billion (29x EV/’22 EBITDA) in December 2022; Chevron’s acquisition of Renewable Vitality Group for $3.1 billion in June 2022; and Shell’s $2 billion acquisition of Nature Vitality Biogas, which was announced last November and accomplished in February. Moreover, Inclusive famous that OCI’s trendy, strategically positioned Iowa Fertilizer Firm plant could be of nice worth to pure-play fertilizer corporations, comparable to Nutrien, searching for nitrogen manufacturing within the U.S. corn belt. Additional, Inclusive famous that Fertiglobe’s profitable IPO confirmed the worth inside OCI’s portfolio, with OCI’s stake in Fertiglobe price almost its total market capitalization previously yr. You will need to notice that Inclusive’s Jeff Ubben sits on the board of Fertiglobe with Nassef Sawiris, govt chairman of OCI.

Ubben has all the time appreciated corporations that he thought had been misunderstood by the market, and Inclusive all the time has an affect ingredient as a main funding thesis. On this case, typically capex in a commodity enterprise is seen negatively by traders. However for all the causes talked about above it might very nicely be an enormous optimistic for not solely OCI shareholders, but in addition the setting.

Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.



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