Methanex (MX-T) top pick from Jason Mann on BNN.ca Market Call Thirst-day Apr 5th @ 1300ET
Methanex is a best-in-class chemicals company in a cyclical commodity business. It produces methanol, which is used in fuel-blending, flooring, paints, sealants, synthetic fibres, etc. They’re about 14 per cent of global production – the largest player. Half the market is concentrated in the top handful of producers.
Methanex is one of the rare stocks that scores well on both price momentum and cheap valuation (top 10 per cent of all stocks in Canada on those two metrics). Valuation reasonable 8.6 times price to free cash flow, 9 times EV/EBITDA, solid ROE at 23 per cent, smallish yield of 2.2 per cent but plenty of room to increases with a low payout ratio. It also has a conservative balance sheet that might be considered under-levered.
More recently, there’s been speculation that Methanex could be a target for CF Industries. We’re somewhat skeptical given the lack of obvious synergies, although methanol and ammonia production are similar in terms of the business and they do have a lot of geographic overlap with operations in Alberta, Trinidad and the U.S. Gulf. It does highlight the valuation difference though. CF trades at 11 times 2018 EBITDA versus Methanex at 7 times forward EBITDA. |
