HRouge Profile picture
7 Jan, 26 tweets, 10 min read
Tiny, UK AIM co in specialty chemicals: specifically "sustainable polymers"

At best this usually means 1 client and a test batch; at worst, magic beans

But Itaconix #ITX is neither and it's rather mispriced: it sells at margins that rival the best in the world - and in size
It may actually be very mispriced; estimates are clearly too low. All in part because it's off the radar.

It's another find by @dopamine_uptake who pointed it out to me after reading on IP Group - some holdings of theirs caught his eye and of them, this one really caught mine.
I'll get straight to it. HY20 end October.

We see revenues up +80% on the previous year's half and they're not far off equaling the whole of 2019's revenues.

Gross margin: 37% - this rings a loud bell

Loss making. Image
It rings a bell because 37% the exact same gross margin as one of the best specialty chemical companies in the world: Croda

I have long wanted to buy it but have never been able to make the valuation work.

37% margins and their big problem is that they don't grow Image
As a quick and dirty first pass when I saw this: growing chemical co, what's it worth to a Croda if they buy it, fire everyone and buy it for that 37% gross margin?

Like I never made Croda's valuation work, I didn't here either. I was off by miles - but in the good direction.
2 mins 50 secs in. Paraphrasing the CEO:

H1 was mainly a pick up in the last 4 months accelerating into the end. It's continuing into H2 and H2 > H1

Here's the estimate.

FY $2.14M minus H1 $1.08M = H2 $1.06M

After H1 rose 59% sequentially and 80% over the previous year - and after what the CEO said we get a drop of -3%

Beyond unlikely. I'll come back later to this and what more realistic numbers mean for the company. Image
Single-tweet chemistry lesson

Sustainable: not derived from petroleum. In the case of ITX, it's usually Itaconic Acid from corn and a fungus. Degrades, non-phosphate, improved characteristics. Replaces pet-chem Acrylic Acid

Polymers: for detergent & personal care products
When we read down the report we see a couple of names - and the one that's immediately recognisable is Croda

Giant in the field, best of breed etc. It's a good start Image
New Wave Global Services.. not so much. Detergent supplier reporting volumes "exceeding management expectations" and there's something about detergent polymer into 2 North American dishwashing brands

(Note: UK based company, US management, end markets mainly US) Image
Google Image
Jackpot: Clorox Image
Because it's chemicals, you get ingredients. Every substance has a unique identifier - called a CAS number. You find a number and you can chase it around to your heart's content all day long.… Image
That number is one of ITX's - Clorox are one of the brands exceeding management's volume expectations. We have another high-quality giant. Image
Who else is on that list? Polymers for Nouyron. Never heard of them. Image
You see what I mean. These guys aren't selling dreams and rocking-horse shit; they're not selling table salt either - they're making a 37% gross margin off specialised chemicals into some of the biggest companies in the world. Image
..and don't forget Jessica Alba. Market cap: 1M followers on Insta. Image
More ingredients Image
More google, more CAS numbers - you get the idea. ImageImageImage
Why all the success?

There is a secular shift towards chemical ingredients that are more sustainable and natural. Jessica washes the baby in it, probably does the dishes with it and even your bleach is going to get it. ITX is right place, right time.…
They've been working on all this for years and it appears that their time may be arriving.

But they have spent a lot of money to get here. They were hinting at a de-listing earlier in the year. There's a meaty going concern and an equity raise. ImageImageImage
I think they'll be just fine.

Let's change that -3% in H2 to something else. I've gone for 20%. FY20 would then come out at $2.4M. Leave in next year's published estimates and we'd need +168% to achieve that. Punchy for sure. Image
But perhaps not impossible. Here I've barely scratched the surface of the products they have and I wouldn't rule out these things growing enough to make it - but they're already talking about packaging and paint. They mention Solvay. This might be what's next. ImageImage
Croda is an IG credit, ITX isn't and Croda's numbers look too high to me but try some crazy: 17.8 x $2.4M

6.57 fwd at 37% margins is 17.8x fwd gross profit. Croda has limited growth, ITX can't move their needle but would you pay above your own multiple for ITX's growth? I might. Image
It's a volume game. Someone doesn't buy them and they make next year's numbers - annualise the expenses and they're about break even. One more raise for working cap, keep growing, ~30%+ drops to the bottom line after that. I'm not sure what it's worth but I don't think it's £13M
PS. I was going to take my time writing this but today the price went bananas. In 2019 ITX gave their full year update on January 9th, Thursday. I assume the move may be expectations for this year's release to be soon.

Other finds from the newspaper here

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More from @hareng_rouge

5 Jan
Now a £35M cap, a fortnight on

It's one of those small UK if-it-were-listed-in-the-US companies. Bidstack #BIDS and it puts advertising into major online games

It's rocketing - and there are some grounds to think that in quite short order it may be about to turn into a firework
"May" and also:

- history of over promising and disappointing
- very much a AIM small cap
- burns cash
- will place and dilute
- has share price on homepage
- Glassdoor is not great
- emoji issues when discussed
*But* it may now be delivering for real. If so it may also be extremely cheap. How cheap?

20H1 was 2x sequentially and 10x YoY

It may be about to report H1-H2 sequential growth of 5x.

If so, FY20: 10x YoY.

Fwd 21 rev multiple? Perhaps half that number, perhaps even less.
Read 25 tweets
2 Jan
Iceberg might have a point here

$WW is Weight Watchers
Don't worry, not going on a bender with filings

T9M figures last 4 years. Yes it's a bit stagnant in the numbers and costs up / profit down a little etc but the COGs numbers are roughly consistent. You could imagine a jump in revenues flowing through quite well.

2018 was Oprah
Fair to guess lots of New Year gym sign-ups are postponed or never happen and more NY lose weight / get fit resolutions than usual find their way here instead?

Cashflow behaves roughly the same. More SBC, bit more capex.
Read 5 tweets
1 Jan
Resolution: no drink and no showing how I read accounts, so grab a bottle of absinthe and let's look at $TRIT

A mysterious stranger appears from a foreign land.

"Play me the music of your people", you ask

It's like nothing you've ever heard but it's everything you've ever felt
You fix the stranger in your gaze

"Where did the cash go?"
"Onto the balance sheet, it is the custom of my people"
Read 17 tweets
30 Dec 20
Very hairy: this company was going down the toilet even before covid; it's now a wreck - and even better, it's enormously exposed to Chinese solar. BK isn't off the cards and the upside may not even be that great. Chart is back to Jan 2017. Singulus from Germany #SNG.DE Image
It's a German maker of high end capital goods for solar, semi and life sciences: glass and wafer deposition / polishing, that kind of area.

How it started:

Revenues & Ebit
2017: €91m & -€1.2m
2018: €127m & +€6.8M
2019: €79M & -€8.0M
And in all it's glory, here's how it's going:

Revenues in 9M20 YTD a third of an already bad 2019. Goes from breakeven to -€20M loss and even achieves a negative gross margin, quite the achievement. Image
Read 17 tweets
5 Nov 20
I'll keep this brief, I think Magnachip $MX, for good reason, could finally be starting to rerate.

It's the RT below: foundry divestment - now it has hit the balance sheet. Today it's 0.6x EV/FY20 revenues and by 2023 their aim is 8% FCF. This is way too cheap. Image
You naturally assume they're a melting ice cube; they're not, they grow. They're reliably prolific in getting design wins and have plenty to look forward to, like the below. Image
It's still a cyclical end-market business but less so with the boom and bust of foundry gone. Now with the cash in the filings, it can screen cheap. The whole idea is simple: if they hit or even approach the targets, an IP led company doesn't trade at a fraction of revenues. Image
Read 18 tweets
5 Oct 20
There's a thread by @Mitch198509 about $NFIN, a SPAC for a trade finance platform. It uses blockchain and at that point in the presentation I stopped. Forget it, of course.

But I read it again, then the proxy, then I put it in front of a trade finance lawyer. Could be something
Those numbers are projections I pulled from the proxy. Earn-outs on either share price X by certain dates, or 90% of the above EBITDA being achieved.

Doesn't need to get a $NCNO to $MKTX multiple to work from here but we can dream.

HY20: Revenue $24M / Ebitda: $17M / Net $14M
What they do in 1 tweet:

Platform for trade finance. TF is slow, paper-intensive, expensive and inaccessible for little fish: company says $1.5T unmet need with 60% of requests refused. Triterras (the biz NFIN is SPACing) brings KYC pre-qualified borrowers and lenders together.
Read 12 tweets

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