Tronox Limited (NYSE: TROX) is a vertically integrated mining and inorganic chemical business. The company mines and processes titanium ore, zircon, and other minerals, and manufactures titanium dioxide pigments that add brightness and durability to paints, plastics, paper, and other everyday products.
The company management is working aggressively towards closure of the Cristal acquisition, and the management is focussing on the full-fledged deployment of its operational excellence program across the combined Cristal and Tronox asset to deliver on the substantial synergy in the combination quickly.
Concerning this, On Sep 5th, the company commented on the decision by the U.S. District Court for the District of Columbia granting the U. S. Federal Trade Commission’s (“FTC”) request for a preliminary injunction regarding Tronox’s proposed acquisition of Cristal. TROX says it plans to appeal the decision and request an expedited hearing so it may proceed with the merger and will consider whether to proceed with the divestiture of Cristal’s Ashtabula, Ohio, titanium dioxide production complex.
It said, In Europe, TROX already received final approval from the European Commission to close its proposed acquisition of the titanium dioxide (“TiO2“) business of The National Titanium Dioxide Company Limited (“Cristal”), a privately held global chemical and mining company headquartered in Jeddah, Saudi Arabia.
In addition to receiving final approval from the European Commission, Australia, China, New Zealand, Turkey, South Korea, Colombia, and Saudi Arabia have also approved the proposed acquisition. The United States Federal Trade Commission remains the final regulatory authority reviewing the transaction.
Before this on August 1st, the company announced financial results for the second quarter. The company reported yet another strong quarter from a business, operation and financial perspective. Its strong top line and bottom line performance once again reflected the synergies and benefits of its vertical integration with all of its assets in full operation and favorable market conditions across pigment, feedstock, and zircon. TROX’ TiO2 business delivered revenue growth of 17%, adjusted EBITDA growth of 37% and adjusted EBITDA margin of 34% and free cash flow of $93 million.
Key highlights of the second quarter:
To summarise, notwithstanding the FTC’ related setbacks, the market is still very positive about that fact that the company continues to gain commercial traction and this highly synergistic combination is all about increasing asset utilization, lowering cost position, unlocking incremental product volumes to serve growing markets worldwide and generate strong cash flow. TROX goal remains unchanged that is to create the world’s premier TiO2 Company for its investors, customers, and employees.
As per www.marketbeat.com, the average twelve-month price target is $26.50, suggesting that the stock has a possible upside of 74.23%. The high price target for TROX is $30.00, and the low-price target for TROX is $24.00. There are currently four buy ratings for the stock, resulting in a consensus rating of “Buy.”
Excerpts of the recent analyst rating and price target on the company:
- Titanium Dioxide (TiO2):
About the product: Titanium dioxide pigment (chemical formula: TiO2) is an inorganic white pigment found in an array of end uses. The most common use—coatings and plastics—accounts for more than 80 percent of global consumption. Tronox markets a range of titanium dioxide pigment grades, and its talented team of scientists works to enhance the performance of products in its customers’ current and future applications.
TROX’ market profile: Tronox is one of six major producers of TiO2 that uses a proprietary chloride process technology. The chloride process, which accounts for 100 percent of Tronox’s pigment production gross capacity, produces pigment grades that are used by manufacturers of coatings and plastics.
Product applications: Paint and Coatings, Paper, Plastics and Printing Ink amongst others.
- Electrolytic and Specialty Chemicals: The Electrolytic and Specialty Chemicals division of Tronox, located in Henderson, Nevada, is an emerging leader in this realm of new technology. The company continues the development of several new electrolytic and specialty products, with a major focus on advanced battery materials. This includes new LMO and lithium manganese grades specially engineered for HEV applications and advanced rechargeable battery systems. Other specialty compounds are produced on a smaller scale with the most advanced technology and superior level of service.
- Mineral sands: Mineral sands are within a class of ore deposits that contain heavy minerals such as ilmenite, zircon, leucoxene, and rutile. The most important, naturally occurring minerals that are mined to produce titanium dioxide (TiO2) feedstock are ilmenite, leucoxene, and rutile. The minerals are either used as feedstock in their natural form or in an upgraded form, such as synthetic rutile and titania slag, which are produced through the secondary processing of ilmenite.
Second Quarter 2018 Results:
- Revenue: Compared sequentially, TiO2 revenue of $492 million increased 11 percent from $442 million in the first quarter, driven primarily by higher pigment, zircon and CP titanium slag sales volumes. Pigment sales of $354 million increased 6 percent from $333 million in the prior quarter, as selling prices were level (1 percent higher on a local currency basis) and sales volumes increased 7 percent.
- Profitability: 2Q18 vs. 2Q17 • Adjusted EBITDA up 37% driven by higher pigment and zircon selling prices • Partially offset by higher input costs which have since moderated; FX to lesser extent 2Q18 vs. 1Q18 • Adjusted EBITDA up 22% driven by higher pigment and zircon sales volumes • Coupled with favorable FX, primarily the South African Ran
- Liquidity and financial flexibility:
Dividend: On August 15th, the company declared a regular quarterly cash dividend of $0.045 per share payable on September 7, 2018, to shareholders of record of the Company’s Class A and Class B ordinary shares at the close of business on August 27, 2018.
- Credit Suisse Basic Materials Conference, New York, September 12, 2018
- Deutsche Bank Leveraged Finance Conference, Scottsdale, AZ, October 2-3, 2018
Key risk factors:
- The company needs the capital to expand, achieve revenue targets. Therefore, management’ ability to improve TROX’s cash flow profile as the company goes forward would continue to remain a critical stock sensitivity factor.
- The positive outcome of the company’ plans for acquisition of Cristal’s and its positive impact on its market and operational risk profiles.
- The company’ business risk profile would continue to remain exposed to risk related to competition. The compass faces completion from larger titanium dioxide producers like Chemours, Dupont, and Huntsman.
- Company’ ability to increase the number of customers and strategic partners who have a strong interest in this product and market. Moreover, TROX’ ability to leverage these relationships to get its business built out.
- On Friday, September 7th, 2018, TROX closed at $15.21, on an average volume of 1.5 million shares exchanging hands. Market capitalization is $1.863 billion. Current RSI is 39.67
- In the past 52 weeks, shares of TROX have traded as low as $13.50 and as high as $28.40
- At $15.21, shares of TROX are trading below its 50-day moving average (MA) at $17.43 and below its 200 days moving average at $19.09
- The present support and resistance levels for the stock are at $14.68 & $15.80 respectively.
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