Stock Investment Lesson Pain

VIChallenge: ASH Misunderstood asset transformation with big upside

VIChallenge Daniel W. Lawrence – Elmrox Investment Group

VIChallenge: ASH Misunderstood asset transformation with big upside

Daniel W. Lawrence is Managing Partner and Founder of Elmrox Investment Group (EIG). EIG is an investment partnership focused on capital preservation and superior risk-adjusted returns that looks for highly idiosyncratic, asymmetric  opportunities using a concentrated approach over a multi-year horizon. Prior to founding Elmrox Investment Group in 2013, Mr. Lawrence was a Managing Director and co-founder of Talara Capital Management. Previously, Mr. Lawrence was a Senior Analyst at Citadel Investment Group. Mr. Lawrence began his career as an investment banking analyst and equity derivatives analyst for Merrill Lynch & Co. Mr. Lawrence is also Founder and Principal Owner of Elmrox Media LLC, a global content firm targeting 18 to 34 year olds. In addition, Mr. Lawrence has served on the Board of Directors of SUS since 2009. Mr. Lawrence earned a B.S. in Commerce from the McIntire School of Commerce at the University of Virginia. He has since been a guest finance lecturer at the University and participates in UVa?s Galant Center for Entrepreneurship.

Misunderstood asset transformation with significant upside and catalysts

  • Commodity chemicals valuation (5x–7x EBITDA) does not reflect the Company’s transformation to a specialty chemicals business (comps 8x-­?12x EBITDA)
  • One of strongest and most predictable earnings growth profiles in materials
  •  Much stronger pricing power and more sustainable margins that market gives credit for
  • Much less cyclical than market realizes (~20% of sales)
  • Much less cyclical than market realizes (~20% of sales)
  • ~80% of EBITDA comes from  competitive advantaged, specialty chemical businesses
  • Consensus does not assume a turnaround of Water business under new management; if  turnaround does not materialize, Water will be monetized with cash proceeds  likely returned to shareholders (2013/2014)
  • Consensus incorrectly believes that Water  business is exposed to North American newsprint paper
  • Current share price ascribes little value to unique and valuable Valvoline asset; Multiple  options for unlocking  significant shareholder  value including a tax-­?free spinoff and/or  MLP qualiMication (2014/2015)
  • Valvoline Instant Oil Change (“VIOC”) store base is  hidden asset where significant incremental  value can be created with little (if  any) capex
  • Raw material concerns especially around guar and oil are exaggerated and misunderstood
  • Consensus does not assume any recovery in Europe in FYE 2014 and FYE 2015 despite end market improvements
  • Cheap option on U.S. housing recovery through Performance Materials segment (2013-­?2015)
  • Free option on higher interest rates through pension
  • Private market valuation creates margin of safety

VIChallenge ASH DanielLawrence: Valuation Analysis


Saved Articles

The Life and Career of Charlie Munger

Charlie is more than just Warren Buffett’s friend and Berkshire Hathaway’s Vice Chairman – Buffett has actually credited him with redefining how he looks at investing. Now you can learn from Charlie firsthand via this incredible ebook and over a dozen other famous investor studies by signing up below:

  • Learn from the best and forever change your investing perspective
  • One incredible tidbit of knowledge after another in the page-turning masterpiece of a book
  • Discover the secrets to Charlie’s success and how to apply it to your investing
Never Miss A Story!
Subscribe to ValueWalk Newsletter. We respect your privacy.

Are you an intelligent investor?

ValueWalkPremium is a website and newsletter for smart investors like yourself. We focus on the latest hedge fund industry news much of which is not in the public domain and obtained via our sources.

We also have 10 years of resources on how to use this information to better your investment process.

Sign up for  today for only a few dollars a day and get a 3 day no obligation trial with a targeted 20% discount coupon code.

Cancel anytime during trial and you are never charged.

Limited time offer: For first 50 subscribers