LSB Industries, Inc. reported financial results for the quarter ended September 30, 2020 reflecting strong production volumes but weak product price realization. While there are signs of price recovery, GVRC expects prices to remain below normalized mid-cycle levels well into FY 2021. Unfortunately, there is limited insight into forward pricing as exogenous unpredictable events can have profound and lasting impacts. However, LSB has mitigated some pricing risk by significantly improving operational reliability. Additionally, FY 2021 revenue growth will likely be concentrated in industrial and mining products, where adjusted EBITDA margins for industrial and mining products have historically ranged from 30% to 40%. GVRC estimates FY 2021 EBITDA of $103.9 million and mid-term normalized EBITDA of about $120 million. GVRC therefore reiterates its target EV of 9.0x mid-term normalized EBITDA of $120 million, which equates to a target price of $10.10. The realization of this target price depends heavily on LSB lowering its cost of capital; GVRC expects a refinancing transaction as early as FQ2 2021.
