Tronox Holdings plc

TROX Details

Tronox Holdings plc (NYSE: TROX) is a vertically integrated manufacturer of TiO₂ pigment. The company operates titanium-bearing mineral sand mines and beneficiation and smelting operations in Australia, South Africa, and Brazil.

Result Performance – For the Second Quarter Ended 30 June 2021

• Increased Revenue: Revenue stood at $927 million, up 60% YoY, led mainly by improved sales volumes and average selling prices across all products
• Income from operations stood at $150 million, and net income stood at $77 million
• GAAP EPS stood at $0.46 and Adjusted diluted EPS stood at $0.61, indicating the difference of Q2FY21 debt extinguishment costs
• Adjusted EBITDA stood at $237 million, up 67% YoY, and Adjusted EBITDA margin stood at 26%, reported a sequential improvement led mainly by the rise of TiO₂ and zircon selling prices
• Free cash flow for the quarter stood at $150 million

Key Data (Source: Company Reports)

Risks

Economic downturns that adversely impact the demand for end-use products could impact the operational results and the favourable prices for the products. The price of products, primarily TiO₂, zircon, and pig iron are volatile, which could impact the financial position and results of operations, if unfavourable.

Outlook:

The company declared a quarterly dividend of $0.10 per share indicating a rise in the quarterly dividend rate of $0.02 per share, equating to a $0.40 per share annual dividend, indicating the confidence in the business model and cash flow generation capabilities.

Management expects TiO₂ and zircon prices to continue to rise. However, in Q3FY21, TiO₂ sales volume is forecasted to decrease 5-10% sequentially from Q2FY21 levels, due to supplier and logistics constraints. Meanwhile, Zircon sales volumes are anticipated to remain high in Q3FY21, driven by sales from inventory, though lower than second quarter 2021 levels.

In Q3FY21, adjusted EBITDA is forecasted to rise to $245-$260 million driven by expected price improvements and the roll-off of Q2FY21 operational disruptions.

Valuation Methodology: EV/EBITDA Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation:

We have valued the stock using an EV/EBITDA multiple-based illustrative relative valuation and have arrived at a target price that reflects a rise of low double-digit (in % terms). We believe the company can trade at a slight premium to its peer average EV/EBITDA (NTM Trading multiple) driven by strong Q3FY21 financial guidance and comfortable cash position of $2.5 billion, as of June 30, 2021.

Considering the aforesaid facts, we give a “Buy” recommendation on the stock at the current market price of US$18.04 per share, down by 0.99% on 9^th August 2021. 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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