The Bottom Fishing Strategy of Adnoc: Exploring Covestro in the European Chemical Sector
Strategic investors with deep pockets often seize the opportunity to engage in bottom fishing, especially in sectors that offer potential for high returns. It seems that a Gulf-based energy group, Adnoc of Abu Dhabi, is making a move in the European chemical sector with an eye on Covestro, a German company. This preliminary offer of 13.5 billion euros from Adnoc indicates its interest in diversifying into cleaner and higher-growth sectors, a strategic shift that aligns with the energy transition. As Adnoc faces slowing growth in its core business, it plans to invest $150 billion in natural gas, chemicals, and clean energy.
Adnoc’s Penchant for Chemicals
Adnoc has demonstrated a keen interest in the chemical industry. It already owns a majority stake in Borouge, a joint venture with Austrian Borealis, and has recently replaced Mubadala in the share capital of both Borealis and OMV, the company that controls it. Just a few weeks ago, Adnoc partnered with Apollo to make an indicative offer for a stake in Brazil’s Braskem. By expanding its presence in chemicals, Adnoc is tapping into an industry with significant potential.
The Attractiveness of the European Chemical Sector
The European chemicals market offers unique opportunities for investors. China’s disappointing recovery, coupled with the recent gas crisis, has put pressure on margins, resulting in more attractive valuations for European chemical companies. Covestro, in particular, has seen its share price trade lower than its previous highs, making it an attractive target for bottom fishing. Furthermore, Covestro boasts a strong position in foam and polycarbonate manufacturing, making it a compelling investment prospect.
An Enterprise Value Below Replacement Value
Adnoc’s preliminary offer of approximately 55 euros per share for Covestro may not initially seem generous. However, when considering the enterprise value, including debt and pension liabilities, it implies a valuation of around 13.5 billion euros. This represents a premium of about 35% to Covestro’s current share price and is below the estimated replacement value of the company. Barclays’ Sebastian Satz has valued Covestro at around 90 euros per share, making Adnoc’s offer significantly lower. This presents an interesting test of market confidence in a potential recovery for Covestro.
Despite its current depressed valuation, Covestro’s strong market position and potential for growth make it an alluring prospect. Investing in Covestro at this stage could prove to be a lucrative opportunity, given its future growth prospects in the European chemical industry.
Expanding Opportunities in the European Chemical Sector
The European chemical industry has faced significant headwinds in recent years, ranging from economic downturns to environmental concerns. However, there are several factors that make this sector an attractive investment option:
- The potential for higher returns: European chemical companies have shown resilience and adaptability, making them well-positioned for growth in the coming years.
- Technological advancements: The chemical industry is undergoing a transformation with the advent of new technologies, creating opportunities for innovation and improved efficiency.
- Strong demand for sustainable products: European chemical companies are at the forefront of developing and manufacturing sustainable and environmentally friendly materials, which aligns with the growing global demand for greener solutions.
- Government support and regulations: European governments are increasingly focusing on sustainability and have implemented regulations to promote the use of environmentally friendly materials. This provides a favorable environment for chemical companies operating in the region.
The Importance of Bottom Fishing
Bottom fishing, as the name suggests, involves investing in assets or companies that are undervalued or have experienced a decline in their share prices. This investment strategy often involves higher risks but can yield substantial rewards if the investment thesis proves successful. Adnoc’s move to explore Covestro through a preliminary offer aligns with this bottom fishing strategy. By acquiring a company with strong fundamentals at a potentially discounted price, Adnoc stands to benefit from the future growth and recovery of the European chemical sector.
Conclusion
Adnoc’s preliminary offer for Covestro demonstrates its strategic intent to diversify into cleaner and higher-growth sectors. The European chemical industry, particularly Covestro, offers an attractive investment opportunity for Adnoc. Despite the current macro headwinds and depressed valuations, Covestro’s strong market position and potential future growth make it an appealing prospect. For investors looking for opportunities in the European chemical industry, Covestro’s undervalued position, coupled with Adnoc’s interest, presents a compelling case for further exploration and analysis.
Lex recommends the FT Due Diligence newsletter, a curated briefing on the world of M&A. Click Here to sign up.
Summary
Adnoc, the Gulf-based energy group, has made a preliminary offer of 13.5 billion euros for German company Covestro in the European chemical sector. The move aligns with Adnoc’s strategy to diversify into cleaner and higher-growth sectors amidst a slowdown in its core business. Adnoc has shown a specific interest in the chemical industry, and Covestro’s strong market position and potential future growth make it an attractive investment prospect. Despite the current macro headwinds and Covestro’s depressed valuations, Adnoc’s offer provides an interesting test of market confidence in the potential recovery of the European chemical sector.
Additional Piece
The global energy transition has created new opportunities and challenges for traditional energy companies like Adnoc. As the world shifts towards cleaner and more sustainable energy sources, oil and gas companies face the need to adapt and diversify their portfolios to remain competitive in the long term. Adnoc’s interest in Covestro exemplifies this strategic shift as it seeks to tap into the growth potential of the European chemical industry.
The European chemical sector is undergoing its own transformation, driven by evolving consumer preferences, regulatory changes, and technological advancements. Companies like Covestro are well-positioned to take advantage of these changes with their expertise in developing sustainable materials and addressing global challenges such as climate change and resource scarcity. Adnoc’s interest in Covestro reflects its recognition of the sector’s potential and its commitment to being a key player in the energy transition.
Furthermore, the depressed valuations of European chemical companies, including Covestro, present unique opportunities for investors seeking long-term value. By taking a bottom fishing approach, Adnoc aims to acquire assets at potentially discounted prices, poised to unlock significant value as the industry recovers and demand for sustainable products continues to grow.
Investing in the European chemical sector, particularly in companies like Covestro, not only provides financial returns but also supports the transition towards a more sustainable and greener future. By backing companies at the forefront of developing innovative and environmentally friendly solutions, investors contribute to the collective effort of mitigating climate change and promoting sustainable development.
As the global economy continues to shift towards cleaner and more sustainable industries, it is crucial for companies like Adnoc to proactively adapt and position themselves for future success. Covestro represents a strategic opportunity for Adnoc to expand its presence in the chemical sector and capitalize on the growing demand for sustainable materials. With its strong market position and potential for growth, Covestro holds promise as a valuable addition to Adnoc’s portfolio.
In conclusion, Adnoc’s preliminary offer for Covestro highlights the strategic importance of bottom fishing and the potential rewards it offers for investors. As the global energy landscape evolves, companies like Adnoc are proactively seeking opportunities in growth sectors to drive long-term value. Covestro’s position in the European chemical industry, combined with its strong fundamentals, presents an attractive investment prospect. By capitalizing on the undervalued nature of the European chemical sector, Adnoc aims to generate significant returns and contribute to the transition towards a more sustainable future.
—————————————————-
| Article | Link |
|---|---|
| UK Artful Impressions | Premiere Etsy Store |
| Sponsored Content | View |
| 90’s Rock Band Review | View |
| Ted Lasso’s MacBook Guide | View |
| Nature’s Secret to More Energy | View |
| Ancient Recipe for Weight Loss | View |
| MacBook Air i3 vs i5 | View |
| You Need a VPN in 2023 – Liberty Shield | View |
Strategic investors with deep pockets like to occasionally engage in bottom fishing spot. A Gulf-based energy group may have pulled the rod to do just that in the European chemical sector. This might explain relationships that Adnoc of Abu Dhabi has made a preliminary offer of 13.5 billion euros for the German Covestro.
Strategically, diversifying into cleaner, higher-growth sectors makes sense for the Abu Dhabi-based national oil company. With the energy transition starting to bite, it faces slowing growth in its core business. It has earmarked $150 billion to invest in natural gas, chemicals and clean energy.
Adnoc has a penchant for chemicals. He owns a majority stake in Borouge, a joint venture with Austrian Borealis, and recently replaced Mubadala in the share capital of both Borealis and OMV, which controls it. A few weeks ago it teamed up with Apollo to make an indicative offer for a stake in Brazil Braskem.
European chemicals trade cheap. China’s disappointing recovery closely followed the gas crisis, which squeezed margins. Rival German chemical group Lanxess warned Tuesday on macro headwinds. While Adnoc’s informal offering – about 55 euros a share – carries a premium of about 35% to Covestro’s unmolested share price, that’s just where the shares traded in early 2022.
On most measures, that doesn’t seem particularly generous, especially given Covestro’s strong position in foam and polycarbonate manufacturing.
Implies an enterprise value of approximately €13.5 billion including debt and pension liabilities, equal to 9.6 times the consensus EBITDA for the current year, depressed, but less than five times the target next year for the “mid-cycle” EBITDA. It is also 40% off the asset’s replacement value of around €90 per share, as estimated by Barclays’ Sebastian Satz.
True, the last time the stock hit replacement value was in 2018. However, even selling out at the end of a cycle may not be attractive. An offer from Adnoc would offer a test of market confidence in a recovery.
Lex recommends the FT Due Diligence newsletter, a curated briefing on the world of M&A. Click Here to sign up.
https://www.ft.com/content/f08348b0-cada-44dd-a595-37c6d43bc1c3
—————————————————-