Morningstar | No Surprises in Narrow-Moat Versum's 3Q; Maintain FVE
Versum reported third-quarter results that fell in line with our expectations, and we plan to maintain our $40 fair value estimate and narrow moat rating. Revenue grew 20% from the prior-year period to $350 million thanks to strong growth in both segments, delivery systems & services and materials. China and Korea represent key growth areas for delivery systems, and the new manufacturing plant in China shows management's commitment to the region.Adjusted EBITDA, which excludes certain restructuring costs, increased 20% year over year to $117 million, but margins fell roughly 10 basis points to 33.4%. We forecast margin expansion over our five-year forecast period, and believe the projected healthy demand partnered with debottlenecking actions in future quarters will be a positive for shareholders. Robust growth in semiconductors and new applications for cloud computing, artificial intelligence, and virtual reality have led to higher volumes and provided ample leeway for management to use research and development expenses to create innovative solutions for customers in highly technical fields.
Management slightly narrowed sales and adjusted EBITDA guidance, and expects between $1.33 to $1.36 billion in sales and $430 to $445 million in adjusted EBITDA. However, these figures exclude costs related to a new enterprise resource planning system, and hitches in implementing the new system may weigh on future quarters.
Finally, recall that we are dropping analyst coverage of Versum. We provide broad coverage of more than 1,500 companies across more than 90 industry groups and adjust our coverage as necessary based on client demand and investor interest.
Versum Materials is a provider of solutions to the semiconductor and display industries with knowledge in the development, manufacturing, transportation and handling of specialty materials. The company has two segments: Materials, which provides materials for deposition, metallization, chamber cleaning and etching, chemicals mechanical planarization slurries, organosilanes, organometallics and liquid dopants for thin film deposition, and chemical products; and Delivery Systems and Services, which designs, manufactures, installs, operates, and maintains chemical and gas delivery and distribution systems for specialty gases and chemicals delivered directly to the company's customers' manufacturing tools.
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