Ascent Industries Value Propulsion Amid Tariff Madness
Ascent Industries (ACNT)
I just returned from the Microcap Planet and MicroCapClub conference in Las Vegas. It was a fantastic event populated by more companies presenting actionable investment opportunities than I could absorb in just a few days, and hundreds of astute and knowledgeable investors to exchange viewpoints and ideas with. Thank you, and kudos to the organizers, Bobby Kraft and Ian Cassel.
Ascent Industries was recently added to our MicroCap Opportunities portfolio. I had an opportunity to speak with management. We did not have a formal introductory write-up when we added the stock to our portfolio. After speaking with management, the following are our takeaways, which serve as our investment thesis.
Ascent has two business segments: tubular pipes and specialty chemicals. In 2023, the company introduced a new management team with an extensive and successful background in specialty chemicals. The new management team is transitioning the company to focus on higher-margin specialty chemicals and has initiated the divestiture of its tubular operations.
The chemicals division produces specialty chemicals for various industries, including carpet, chemical, paper, metals, mining, agricultural, fiber, paint, textile, automotive, petroleum, cosmetics, mattress, furniture, and janitorial. Generally, the company serves blue-chip customers in chemical processes that are specific and not scalable, making them too small revenue-wise for the larger specialty chemical companies, but result in sticky recurring revenue like contracts.
Activist investors recognized the value in an underperforming company and took control of the board in 2023, appointing industry veteran Brian Kitchen as interim CEO. Mr. Kitchen is now the permanent CEO, and he has brought on his team members from previous successful exits, including CFO Ryan Kavalauskas.
The new management team harvested low-hanging fruit opportunities, improved profit margins, and cleaned the balance sheet by reducing debt. The Bristol Metals sale in March brought in $45 M. The yet-to-be-accomplished American Stainless Tubing asset will soon complete the product shift to 100% specialty chemical products. The company now has over $60 M in cash on the balance sheet, and no debt.
The management team is now focused on scaling its specialty chemicals business. Last week, the company announced the acquisition of a specialty chemicals company. The acquired company serves an existing Ascent customer and will increase specialty chemical product sales by 10%.
The American Stainless Tubing asset sale is expected to be completed before the end of the year. It will further boost the strong balance sheet, resulting in a profitable chemicals business selling below 1X sales. Ascent is also a play on the tariff climate, as almost all sourcing and manufacturing is completed in the U.S.