White Brook Capital, LLC on Ascent Industries Co.
Thesis
White Brook bought Ascent Industries during the third quarter as improving chemical sales began to translate into operating profit. After a difficult first quarter, second-quarter sales rose around 38%, partly due to an acquisition, and profitability turned positive. Management is pursuing $3-5 million in cost savings, most targeted by year-end, and expects a $4.5 million cash receipt from an earlier sale. The fund considers the stock inexpensive because cash accounts for nearly a quarter of market capitalization and the operating business is valued at approximately 1.1 times trailing annual revenue.
“We bought the position on the news.”
Key risks
- High utilities, raw-material and shipping costs could continue to erode margins.
- Startup costs and acquisition integration may prevent sustained cash generation.
- Management expects a dip in fourth-quarter margins.