Upgrade Scotia Capital’s Ben Isaacson raised his Methanex Corp. (MEOH-Q, MX-T) target to US$60 from US$56, keeping a “sector outperform” rating. The average is US$56.50.“There are several reasons why we remain bullish” he said. “First, the global energy complex remains elevated, including Chinese coal. This should support marginal cost in the $400/mt area near-term, which is higher than what the Street is pricing in.
Second, we expect the methanol market to tighten through Q2 on planned/unplanned outages, providing some positive momentum for implied margins and the stock. Third, Methanex is delivering on its capital allocation philosophy by focusing excess FCF toward material share repurchases – having just upsized its buyback to 10 per cent. Fourth, with oil in the $100 to $110/bbl range, the marginal consumer of methanol, MTO, has fairly supportive economics. Fifth, G3 remains on-time and on-budget.
Based on $400/mt methanol (MEOH just realized $425), we estimate an incremental $325-million in annual EBITDA contribution from G3. As we get closer to the end of 2023, the market should begin pricing this in. Sixth, on valuation, not only is Methanex trading at a approximately 1 times EV/EBITDA discount, but this also includes no value whatsoever for G3, which doesn’t make sense.”