Daniel Prather of Brasada Capital Management presented his investment thesis on Entegris (US: ENTG) at Wide-Moat Investing Summit 2021.

Thesis summary:

Entegris is a one-of-a-kind manufacturer and supplier of gas/liquid filters, specialty chemicals, and advanced materials-handling products for semiconductor manufacturing processes.

Increasing manufacturing complexity due to smaller transistor sizes and 3D designs are forcing semiconductor manufacturers to consume more materials per wafer, coupled with increasing filtration/purity standards, resulting in nonlinear demand increases for Entegris’s filters and specialty chemicals. Further, performance limitations of traditional materials at these smaller (atomic scale) nodes compel manufacturers to lean on material specialists more intensely to solve their most pressing performance/manufacturing yield issues, giving ENTG greater visibility into their customers’ development pipeline and substantively de-risking the firm to technology changes at the leading edge. In addition to nonlinear material demand growth, real and durable use case expansion for semiconductors driven by 5G, IoT, Big Data, and AI should drive strong growth in wafer volumes over time.

Entegris is expected to benefit from these developments in a compounding fashion as semiconductor manufacturers transition to new transistor/memory nodes, locking in higher levels of complexity and spending. As a one-of-a-kind supplier with no direct public market comparable, along with general inattention by both chemical and semiconductor specialists, the company appears undervalued when viewed against leading semi equipment suppliers, and significantly undervalued when applying a “compounder” framework.

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About the instructor:

Daniel Prather is an analyst at Brasada Capital Management. Prior to joining Brasada, he was an M&A and Strategy Associate at Ensco Plc, an offshore drilling company, responsible for the valuation and execution support of ~$10 billion in M&A transactions (Atwood Oceanics, Rowan Companies). Before joining Ensco, Daniel was an equity research analyst with KLR Group in Houston covering the E&P sector of the energy industry. Daniel earned a Bachelor of Science in Aerospace Engineering from The University of Kansas and a Masters in Science in Finance from Washington University in St. Louis. Daniel is also a CFA charter holder and an Eagle Scout.

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