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Dow Inc Spin-Off: Classic Value Investment Story
[/vc_column_text][/vc_column][/vc_row][vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column][vc_empty_space height=”15px”][/vc_column][/vc_row][vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column][vc_column_text]22 March, 2019[/vc_column_text][/vc_column][/vc_row][vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column][vc_empty_space height=”10px”][/vc_column][/vc_row][vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column][vc_separator type=”normal” color=”#ededed”][/vc_column][/vc_row][vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column][vc_empty_space height=”50px”][/vc_column][/vc_row][vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column][vc_column_text]Shares of Dow Inc, a spin-off from DowDuPont, started trading on March 20th, 2019 on a when-issued basis. At $50 per share, Dow Inc’s market cap is approximately $37.5 billion. According to company’s roadshow presentation, Dow Inc will have a net debt of $15 billion at the spin-off while FY 2018 operating EBITDA was $9.1 billion. This means that Dow Inc is currently valued at an EV/EBITDA multiple of x5.77. This looks low, especially compared to the valuation of DowDuPont combined: it currently trades at an EV/EBITDA ratio of about x9.3 (FY 2018 results).
Already before the spin-off, the company announced that initially, it plans to pay an annual dividend in the amount of $2.1 billion, which provides investors with an annual yield of 5.6% percent. Dow will also have share repurchase program in place, initially for $3 billion. Assuming that it will be implemented over 3 years, shareholders will be rewarded with an additional annual yield of 2.6% percent.
Assuming a more “normal” EV/EBITDA multiple and generation of $3 billion of FCF annually, in two years Dow Inc shares could be valued at $79 per share, which provides an upside of 58% percent[/vc_column_text][/vc_column][/vc_row][vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column][vc_empty_space height=”150px”][/vc_column][/vc_row]