What happened
Shares of industrial tank manufacturer Chart Industries (GTLS +0.01%) rose 14.5% this week, according to data provided by S&P Global Market Intelligence.
The industrial company, which specializes in cryogenic storage tanks, heat exchangers, and specialty equipment for LNG, water treatment, hydrogen gas, carbon capture, and other industrial applications, rose upon releasing an investor update on April 11.
Apparently, investors liked what they heard, especially regarding year-to-date customer wins and achieved synergies with Chart's new acquisition, Howden. The day of the presentation, the stock shot up around 12%, propelling most of Chart's weekly gains.
NYSE: GTLS
Key Data Points
So what
It should be noted that Chart has been struggling for basically the last five months, ever since it announced the Howden acquisition back in November. Upon the announcement, Chart's stock immediately fell nearly 50%.
Matters weren't exactly helped when Chart decided to raise equity and preferred stock in December, after the stock price had been cut in half, to finance a portion of the deal. And the remaining debt financing came with a relatively high yield between 7.5% and 9.5%. The stock then sold off more recently during the March regional banking crisis.
With the Howden acquisition made at a hefty multiple at 12.9 times Howden's earnings before interest, taxes, depreciation, and amortization (EBITDA), investors are counting not only on cost synergies, but revenue synergies as well to justify the deal.
It appears, however, that this week's presentation may have calmed some nerves. In the presentation, management said the combined company is on track to meet or exceed its $175 million cost synergy goal in year one, with an additional $150 million of revenue cross-sell synergies. Moreover, management had also said it would sell $500 million worth of non-core assets to help pay off some of the debt, and the updated presentation noted those divestitures are on track to proceed in the second and third quarters of this year. Finally, management reiterated its initial projection from last November for $1 billion in combined 2023 EBITDA and $1.3 billion in 2024 EBITDA.
Some had wondered if taking on an expensive acquisition just before a potential recession was a bad idea. After all, natural gas prices have plummeted since the summer, and Chart has a lot of business related to liquified natural gas.
However, it appears geopolitical concerns and the need to lower emissions are spurring demand in LNG infrastructure anyway. The presentation also noted that Chart had onboarded 90 new customers in the first quarter, more than the 84 new customers gained in the year-ago quarter. And the existing backlog for both the Chart and Howden businesses were at all-time highs as of March 31.
Image source: Getty Images.
Now what
While this week's 14.5% bump was nice for Chart, the stock is still over 50% below its highs prior to the Howden acquisition. But if Chart hits its EBITDA targets and executes on its divestitures, it should be able to de-lever its balance sheet significantly over the next two years. That could lead to upside.
Management has also sounded confident in the logic of these two businesses combining, as Chart's storage and heat transfer systems are often paired with Howden industrial fans, blowers, and turbines. So, if one plus one really does equal three in this case, Chart's stock could eventually claw its way higher over the next couple of years if it executes and continues to pay down its new debt.
