Post by
retiredcf on Jan 04, 2022 8:04am
RBC
Current and upside scenario targets are US$60 and US$70. GLTA
Outperform
NASDAQ: MEOH; USD 39.85; TSX: MX
Methanex Corporation
Methanol spot prices retreat from October peak, but the 2022/23 forecast is largely unchanged
Our view: Although methanol spot prices continue to retreat from the peak levels reached in October, IHS expects prices to remain at healthy levels through 2023. We are reiterating our Outperform rating on Methanex's shares, supported by: i) strong methanol prices driving significant cash flow generation in 2022/23; ii) a potential acceleration in the pace of stock buybacks; and iii) the gradual de-risking of the Geismar 3 (G3) development as the remaining $800–900 million of capex is deployed through 2023.
Key points:
Methanex's reference prices were modestly lower for January. Methanex posted its quarterly European contract price for the Q1/22 period of €505/MT, which compares to the Q4/21 contract price of €490/MT (up 3%). Methanex also released its monthly North American and Asia Pacific non-discounted reference prices for January at $619/MT (down 4% from $642/MT in December, but remains 11% above Q3 pricing) and $500/ MT (down 4% from $520/MT in December, but remains 15% above Q3 pricing), respectively. We note that the decline in the Asia Pacific price is understated because the December 2021 price includes China, while the January 2022 price excludes China (more details below).
Introducing new reference pricing for China. As expected, Methanex introduced a new posted price for the China market at $430/MT for January, in order to better reflect the different market fundamentals in China versus other countries in the region. Methanex will continue to post the Asia Pacific price for customers in the region excluding China. For reference, Methanex sells about 25-30% of its methanol into the North American market, 20% into the European market, 30-35% into China's market, and about 20% into other Asia Pacific markets.
Returning capital to shareholders. With respect to the company's previously announced NCIB for 5% (~3.81 million shares) of the shares outstanding, valid through September 23, 2022, Methanex has bought back ~810,000 shares (~21% of the NCIB) as at the end of November. The company repurchased ~375,000 shares in November, and we expect the pace to increase in Q1/22. By the end of 2021, the company should be finished setting aside all the cash needed to complete G3 and also have a $200–300 million cash buffer on its balance sheet, so all excess cash flows thereafter can be allocated to share buybacks.
Reducing estimates. We have reduced our 2022 and 2023 Adjusted EBITDA estimates to $911 million, and $890 million, respectively (from $976 million and $897 million, respectively). Our revisions primarily reflect IHS' updated methanol price forecast and Methanex's non-discounted reference prices for North America, China, and Asia Pacific (ex. China) for January and Europe for Q1/22. Our 2023 estimate is modestly below our 2022 estimate, reflecting a moderation in methanol prices as supply conditions improve
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