Morningstar | Raising Our Celanese Fair Value Estimate to $105 on Higher Near-Term Outlook; Shares Fairly Valued. See Updated Analyst Note from 23 Apr 2019
A more narrow Brent oil to U.S. natural gas spread weighed on commodity chemical profits to begin the first quarter. Nevertheless, Celanese reported decent results as segment operating operating profit was flat on a sequential basis at $1.7 billion. Looking forward, we have increased our near-term expectations for oil prices, which should boost Celanese's near-term commodity chemical profits as marginal cost producers use Brent oil-based naptha as a feedstock. Our increased near-term expectations lead us to raise our fair value estimate to $105 per share from $102 for Celanese. Our narrow-moat rating remains intact.In the acetyl chain business, operating EBITDA was down 17% year on year to $240 million as lower prices and volumes weighted on profits. While we forecast acetyl chain operating EBITDA to exceed $1 billion in 2019 and 2020, we forecast that a more narrow long-term Brent oil to U.S. natural gas spread will weigh on long-term profits as the acetic acid cost curve narrows. In a midcycle environment, we forecast the acetyl chain business to generate roughly $900 million in operating EBITDA.
In the downstream engineered materials segment, operating EBITDA was flat year on year to $214 million as higher prices were offset by lower volumes and unfavorable currency movements. In the earnings update, management highlighted growing demand for Celanese's patented polyethlyene products used to produce battery separators in lithium ion batteries. This example highlights the long-term success of Celanese's tuck-in acquisition plan to grow its downstream business, which is one of the pillars of our Exemplary stewardship rating. Celanese expanded its portfolio of ultrahigh-molecular-weight polyethlyene products with the 2010 acquisition of Ticona. As the company continues to develop new patented products, we expect operating EBITDA margins to remain in the low- to mid-30% range as new products replace expired patents.
Celanese is a holding company. Through its subsidiaries, the company is a chemical and specialty materials company. The company is a producer of engineered polymers and a producer of acetyl products, which are intermediate chemicals. The company's segments are: Engineered Materials, which develops, produces and supplies a portfolio of specialty polymers for automotive and medical applications, as well as industrial products and consumer electronics; Acetate Tow, which is a producer and supplier of acetate tow and acetate flake, primarily used in filter products applications; and Acetyl Chain, which includes the chain of intermediate chemistry, emulsion polymers and ethylene vinyl acetate polymers businesses.
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