VIChallenge: ASH Misunderstood asset transformation with big upside

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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

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