Covestro: High-Value Niche Player Misperceived as Commodity Business

Antonio Garufi of Decalia Asset Management presented his in-depth investment thesis on Covestro (Germany: 1COV) at European Investing Summit 2018.

Thesis Summary:

Covestro is a German diversified chemicals company with a market cap of €14 billion. It is a leader in insulating materials for sustainable buildings and high-tech materials, coatings, and adhesives.

It will capitalize on long-term trends, such as innovative mobility, a growing population, urbanization, and climate change. Covestro markets thousands of products worldwide and has an innovative company DNA.

While is perceived as a commodity business, it is actually a leader in several high value-added niche markets.

Covestro shares recently traded at an affordable valuation amid forced selling by Bayer and negative market sentiment, namely 4x EV/EBITDA, 6x P/E, and a 13% FCF yield. The company operates in a concentrated industry with high barriers to entry.

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About the instructor:

Antonio Garufi is a portfolio manager and equity analyst at Decalia Asset Management, based in Geneva since 2017. Previously, he spent one year at Citigroup and three years at J.P. Morgan in London. He then went on the buyside at Astor Investment in Milan, where he was an analyst and co-manager of a thematic hedge fund. He graduated from Bocconi University in 2005, where he is currently a teaching assistant, has a Phd in Business Administration and attended the Value Investing Program at Columbia Business School. He graduated from the Strategic Financial Analysis program at Harvard Business School in 2018.