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METHANEX: Valuation and Strategic Review

METHANEX: Valuation and Strategic Review. Recommendation: BUY 1-year Price Target: C$36.15 Price as of Feb 7 th : C$34.24 Dividend Yield: 2.15% Total Implied Return: 7.68%. MICHAEL COOK ERIN ROBINSON PHIL WALLACE RUSHAB HARIA RAJANVIR AHUJA . AGENDA.

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METHANEX: Valuation and Strategic Review

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  1. METHANEX: Valuation and Strategic Review Recommendation: BUY 1-year Price Target: C$36.15 Price as of Feb 7th: C$34.24 Dividend Yield: 2.15% Total Implied Return: 7.68% MICHAEL COOK ERIN ROBINSON PHIL WALLACE RUSHAB HARIA RAJANVIR AHUJA

  2. AGENDA METHANEX: Valuation and Strategic Review, 22nd February, 2013 Prepared for the 2013 CFA Research Challenge 1

  3. Introduction: What is Methanol? Acetic Acid Introduction Dimethyl Ether Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions Fuel Blending Formaldehyde METHANEX: Valuation and Strategic Review, 22nd February, 2013 Prepared for the 2013 CFA Research Challenge 2

  4. Industry Analysis: A Market Set for Growth Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions Source: Company Reports METHANEX: Valuation and Strategic Review, 22nd February, 2013 Prepared for the 2013 CFA Research Challenge 3

  5. Industry Analysis: Methanol Markets Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions Source: Company Reports, Team Research • 61% of world demand comes from Asia • Distribution channels critical for transfers from supply to demand markets METHANEX: Valuation and Strategic Review, 22nd February, 2013 Prepared for the 2013 CFA Research Challenge 4

  6. Introduction • Company Overview Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions Source: Company Reports • Plant distribution allows low cost natural gas inputs • Increasing production in strategic North American locations METHANEX: Valuation and Strategic Review, 22nd February, 2013 Prepared for the 2013 CFA Research Challenge 5

  7. Introduction • Increased demand forecast to outpace short-term supply • Methanol price stability • Low cost positioning is stable and improving • Oil-natural gas arbitrage play Industry Analysis Company Overview • Reasons to Buy Reasons to Buy Investment Risks Valuation Conclusions Source: Company Reports METHANEX: Valuation and Strategic Review, 22nd February, 2013 Prepared for the 2013 CFA Research Challenge 6

  8. Introduction Industry Analysis Company Overview • Reasons to Buy – Chinese Fuel Blending Reasons to Buy Investment Risks Valuation Conclusions Source: Company Reports METHANEX: Valuation and Strategic Review, 22nd February, 2013 Prepared for the 2013 CFA Research Challenge 7

  9. Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks • Investment Risks Valuation Conclusions METHANEX: Valuation and Strategic Review, 22nd February, 2013 Prepared for the 2013 CFA Research Challenge 8

  10. Introduction Historical Methanol Posted & Realized Price Industry Analysis Company Overview Reasons to Buy Investment Risks • Investment Risks Valuation Conclusions Source: Company Reports $10 Δ in Methanol price ≈ $37m Δ in EBITDA METHANEX: Valuation and Strategic Review, 22nd February, 2013 Prepared for the 2013 CFA Research Challenge 9

  11. Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions • Valuation: Methodology METHANEX: Valuation and Strategic Review, 22nd February, 2013 Prepared for the 2013 CFA Research Challenge 10

  12. Production Forecast Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions • Valuation: DCF • Production is predominantly from reliable regions (tapering off in Egypt) METHANEX: Valuation and Strategic Review, 22nd February, 2013 Prepared for the 2013 CFA Research Challenge 11

  13. Introduction Sales Mix (by volume) 9% Industry Analysis Company Overview Reasons to Buy 31% Investment Risks Valuation Conclusions 60% • Valuation: DCF METHANEX: Valuation and Strategic Review, 22nd February, 2013 Prepared for the 2013 CFA Research Challenge 12

  14. Introduction Cash Flow Analysis Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions • Valuation: DCF METHANEX: Valuation and Strategic Review, 22nd February, 2013 Prepared for the 2013 CFA Research Challenge 13

  15. Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions • Valuation: Comparables METHANEX: Valuation and Strategic Review, 22nd February, 2013 Prepared for the 2013 CFA Research Challenge 14

  16. Forward EV/EBITDA Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions • Valuation: Comparables Growth in 2014 implies MX is trading at a discount to historical levels METHANEX: Valuation and Strategic Review, 22nd February, 2013 Prepared for the 2013 CFA Research Challenge 15

  17. Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions • Conclusion METHANEX: Valuation and Strategic Review, 22nd February, 2013 Prepared for the 2013 CFA Research Challenge 16

  18. QUESTIONS

  19. Introduction Industry Analysis Company Overview Prices outside this range can have a material impact on Nat Gas supply contract prices Reasons to Buy Investment Risks Valuation Conclusions • Appendix: Sensitivity Analysis Sensitivity Analysis (DCF) METHANEX: Valuation and Strategic Review, 22nd February, 2013 Prepared for the 2013 CFA Research Challenge

  20. Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions • Appendix: Competitor Analysis METHANEX: Valuation and Strategic Review, 22nd February, 2013 Prepared for the 2013 CFA Research Challenge

  21. Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions • Appendix: Income Statement METHANEX: Valuation and Strategic Review, 22nd February, 2013 Prepared for the 2013 CFA Research Challenge

  22. DuPont Analysis Introduction Changes in ROE come from Net Margin. Shifting towards high margin segments will boost ROE. Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions • Appendix D/E Ratio METHANEX: Valuation and Strategic Review, 22nd February, 2013 Prepared for the 2013 CFA Research Challenge

  23. Introduction Industry Analysis Historical Beta Company Overview Reasons to Buy Since 2008 beta has been consistently between 1.75 and 2.0 Investment Risks Valuation Conclusions • Appendix Historically beta was very low METHANEX: Valuation and Strategic Review, 22nd February, 2013 Prepared for the 2013 CFA Research Challenge

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