Valuation Insights and Lessons from Cyclical Investments

This is Matt Reustle and today we are breaking down Olin Corporation. Olin is a key player in industrial chemicals but many of those chemicals are used in products that we encounter on a day-to-day basis. To break down Olin, I'm joined by Yinan Zhao from Pzena Investment Management. Together we cover the chlor-alkali market, what it means to be the lowest-cost producer of a given commodity, and how Olin has shifted its business model and its operational model to help sustain earnings through cycles. Please enjoy this breakdown of Olin Corp.

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Show Notes

(00:01:33) - (First question) - An elevator pitch for Olin

(00:02:56) - Investors looking at DuPont also look at Olin from a subsector perspective 

(00:03:55) - A brief history of Olin’s business

(00:07:40) - The process of creating Chloralkali and its uses

(00:11:25) - The similarities and differences when comparing the crude oil refining process and the creation of Chloralkali

(00:12:21) - The use of Olin’s chlorine in residential public pools 

(00:12:48) - The breakdown of manufacturing operations of Olin, control versus outsourcing

(00:18:14) - A snapshot of the revenue percentages of Olin’s businesses

(00:19:13) - The percentage range of Olin’s cyclical commodities 

(00:20:06) - The end markets that Olin integrates itself in

(00:22:47) - A background on CEO Scott Sutton and the shift in operating philosophy

(00:29:09) - Olin’s confidence in its new optimization strategies

(00:33:49) - The downside risk to Olin’s new business model

(00:35:53) - A breakdown of Olin’s CapEx spending 

(00:37:17) - The margin profile and EBITDA growth, historically and how it looks now

(00:38:20) - The difficulties in forecasting and similarities with oil refinery volatility

(00:40:02) - Market futures activity and hedging

(00:41:49) - The Winchester business and its position within the overall Olin pie

(00:43:49) - The announcement to the departure of Scott Sutton and the risks posed

(00:48:11) - Other potential risks to Olin’s business moving forward

(00:49:11) - A look at Olin’s ESG ranking 

(00:51:35) - Valuing the business and what investors might think about Olin

(00:53:12) - Lessons learned from researching Olin