Ubben’s Inclusive sees prospect to increase benefit at Dutch chemical maker and enable the surroundings

Enterprise: OCI produces and distributes hydrogen-based and normal fuel-based products and solutions to agricultural, transportation, and industrial prospects. It operates by means of the following segments: Methanol U.S., Methanol Europe, Nitrogen U.S., Nitrogen Europe and Fertiglobe. The enterprise gives anhydrous ammonia, granular urea, urea ammonium nitrate option, calcium ammonium nitrate, ammonium sulphate, aqueous ammonia, nitric acid, urea resolution, bio-methanol, methanol, melamine and diesel exhaust fluid, as effectively as other nitrogen products. OCI also owns and operates an ammonia terminal at the port of Rotterdam. The enterprise has operations in Europe, the Americas, the Middle East, Africa, Asia and Oceania.

Inventory Marketplace Price: ~6.3 billion Euros (29.93 Euros per share), according to FactSet

Share Ownership:  ~5.%

Average Price: n/a

Activist Commentary: Inclusive Money Partners is a San Francisco-centered investment decision agency which companions with organizations that help alternatives to address environmental and social difficulties. Established in 2020 by Jeff Ubben, who beforehand launched ValueAct Capital in 2000, Inclusive seeks to leverage capitalism and governance in pursuit of a balanced world and the wellbeing of its inhabitants although making long-term benefit for shareholders. As a groundbreaking activist ESG (“AESG”) trader, Inclusive seeks extended-expression shareholder benefit as a result of lively partnership with providers whose core businesses contribute alternatives to this pursuit. The firm’s main concentration is on environmental and social value generation, which potential customers to shareholder value generation.

Inclusive sent a letter to Nassef Sawiris, executive chairman of OCI, expressing the firm’s belief that OCI is worthy of around 90% much more than its latest stock price and calling on the board to examine strategic solutions to unlock the company’s worth.

The the vast majority of OCI’s small business relates to fertilizer for agricultural functions and other nitrogen goods with about 12% of earnings created via methanol gasoline products. This business enterprise does $9.7 billion in income and $3.6 billion in earnings prior to interest, taxes, depreciation and amortization. Nonetheless, the chance listed here is what the foreseeable future brings.

OCI is presently embarking on a $1 billion development of the biggest blue ammonia facility in the United States situated in Beaumont, Texas. It will be a state-of-the-art facility at the forefront of blue ammonia generation and is anticipated to arrive on line in 2025 and produce 1.1 million tons of blue ammonia each year. This facility will combine nitrogen with blue hydrogen to build blue ammonia. It is viewed as “blue” ammonia mainly because the carbon emissions produced from the hydrogen output system are captured and stored. Blue ammonia has a amount of merchandise apps in OCI’s present item strains as a sustainable and lower carbon enter for fertilizer, fuel and feed. What’s more, liquefied blue ammonia can be marketed domestically or transported to OCI’s ammonia import terminal in the port of Rotterdam, as they see European demand for hydrogen and ammonia as a major development location fueled by the electrical power transition and decarbonization.

For the reason that of the just lately enacted Inflation Reduction Act in the U.S. and carbon taxes in Europe, the output of blue ammonia will have quite a few economical added benefits. To start with, the IRA greater the tax credit rating for every ton of carbon stored to $85 per ton, up from $50. OCI’s program will produce 1.1 million tons of ammonia that generates 1.7 million tons of carbon, just about all of which is captured and saved. Second, this blue ammonia will be sold through an ammonia terminal at the port of Rotterdam that OCI owns and operates. For the reason that it is minimal-carbon fuel, it will not be matter to the $100 per ton carbon tax on competing products and solutions, allowing OCI to provide at a market place rate and enjoy an supplemental $100 for each ton of margin. This is expected to guide to $350 million of annual EBITDA from the $1 billion of capex demanded. Moreover, ammonia is less difficult to ship than hydrogen mainly because it can be transported at a temperature of  -33°C compared to -253°C for hydrogen. For these causes, blue ammonia can serve as an significant supply of decarbonized hydrogen, is poised to be a massive section of a environmentally friendly vitality future, and it has several secular tailwinds.

Inclusive thinks that OCI’s methanol organization, combined with its lower carbon ammonia task in Beaumont, has important strategic price and could create desire from massive strength gamers looking to accelerate their vitality transitions. As a reference, Inclusive cited BP’s acquisition of biogas producer Archaea Electricity for $4.1 billion (29x EV/’22 EBITDA) in December 2022 Chevron’s acquisition of Renewable Power Group for $3.1 billion in June 2022 and Shell’s $2 billion acquisition of Mother nature Strength Biogas, which was declared final November and done in February. Also, Inclusive famous that OCI’s contemporary, strategically situated Iowa Fertilizer Organization plant would be of fantastic worth to pure-perform fertilizer providers, these as Nutrien, in search of nitrogen creation in the U.S. corn belt. More, Inclusive famous that Fertiglobe’s profitable IPO confirmed the value within just OCI’s portfolio, with OCI’s stake in Fertiglobe truly worth just about its entire market place capitalization in the past 12 months. It is essential to observe that Inclusive’s Jeff Ubben sits on the board of Fertiglobe with Nassef Sawiris, govt chairman of OCI.

Ubben has always appreciated businesses that he imagined have been misunderstood by the market place, and Inclusive always has an effect element as a most important financial investment thesis. In this situation, frequently capex in a commodity business is considered negatively by traders. But for all of the explanations pointed out previously mentioned it could extremely perfectly be a enormous good for not only OCI shareholders, but also the ecosystem.

Ken Squire is the founder and president of 13D Keep an eye on, an institutional investigate services on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.