With Sale of Agricultural Business Pending, Citi Takes Neutral Stance On Platform Specialty Products

Citi is moving to the sidelines on Platform Specialty Products Corp. PAH pending the closing of the company’s sale of its agricultural chemicals business. 

The Analyst

Citi analyst Daniel Jester downgraded Platform Specialty Products from Buy to Neutral and raised the price target from $13 to $14.

The Thesis

Jester anticipates that shares will trade rangebound in the immediate near-term as investors await the transaction's close. (See his track record here.)

“With the shares at nearly $13 today, the stock is trading at basically 10x our 2019 Performance Solutions EBITDA. PAH has done a good job managing the Performance Solutions business and organic growth has averaged 5 percent over the past six quarters,” the analyst said. 

Citi sees risks in pieces of Platform's electronics business such as a potential impact from Chinese tariffs, declining PC shipments and a forecast of smartphone demand uncertainty in the second half of 2018. 

The agricultural chemical business sale should give Platform lower leverage, better free cash flow generation and stock buyback opportunity, all of which support expansion, Jester said.

“However, we see 2019 EBITDA growth near or slightly below peers, which may limit the potential of PAH shares to trade at a premium to the comparable group in the near term.”

Platform's performance solutions business has been successfully managed, leading to 5-percent organic growth in the last six quarters, Jester said. 

“On the positive side, PAH’s industrial business is likely being supported by sturdy demand and higher oil prices, if sustained, could help the small offshore business. Yet we see the potential for some volatility in results.”

Price Action

Platform Specialty Products shares were down 1.33 percent at $12.62 at the time of publication Wednesday. 

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