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Here’s how Inclusive Capital could help materials firm Ingevity lean into its ESG narrative


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Company: Ingevity – NGVT

Business: IngevityThe company is one of the most prominent bio-based material companies. It converts waste streams from paper and wood industries into high-value specialty materials. The company operates in two distinct segments. (i) Performance Materials includes activated carbon with high performance; and (ii). Performance Chemicals includes engineered polymers and specialty chemicals. Its products can be used in many applications such as asphalt, oil exploration, production and maintenance, as well as automotive parts that lower gasoline vapor emissions. Global leader in this industry, the Materials segment (37% of revenues) turns furniture scrap into activated carbon. Sixty-three percent of the revenue comes from Chemicals. This segment takes pine tree wood and makes sticky, oily materials. These are then used to make adhesives, lubricants and paving additives. The company’s products are used in vehicles to abate carbon emissions – they abate more than 40 million tons of carbon emissions per year from their product base. Simply put, the company makes fuels and chemicals that can replace and clean up old fossil-based chemistry.

Stock market valuePrice: $2.4B (62.35/share)

Activist – Inclusive Capital Partnerships

The percentage of ownership: 5.41%

Average Cost: $69.23

Commentary of an activist:Inclusive Capital Partners, a San Francisco-based investor firm, focuses on increasing shareholder value while promoting sound governance and environmental practices. Jeff Ubben, founder of ValueAct, founded it in 2020 to combine capitalism with governance for a healthier planet and its people. It is a pioneering active ESG and a leader in its field (AESG™Inclusive is a long-term investor. It seeks shareholder value by active partnerships with businesses whose core business contributes to that pursuit. Inlusive, a return-oriented fund that focuses on social and environmental investing, is an investment vehicle. The fund’s main focus is to create shareholder value by focusing on social and environmental value. Inclusion is so focused upon environmental value, it created a new way to value companies. Enterprise value to carbon emissions abated.

What’s happening?

Inclusive capital Partners reports a 5.41% stake in NGVT to invest purposes.  

Behind the scenes

Ingevity is strong on the ESG theme: Ingevity has two segments that have positive ESG characteristics. 78% of Ingevity revenue comes from renewable companies. Performance Materials uses sawdust that comes from furniture manufacturers to make activated carbon, which is then used for automobile emission control. Ingevity holds a large market share, selling directly to the original equipment producers. As older vehicles are removed from the roads and replaced with newer, more efficient cars that have emission control systems, this market will grow. Performance Chemicals is a business that takes pine sap residue from paper mills and makes sticky substances. These can then be used as adhesives and road asphalt. A variety of petrochemicals are being replaced by oily substances in lubricants.

Performance Materials’ EBITDA margins are at least 45% and have mid-single-digit long term growth. Performance Chemicals is only 20% with mid- to high-single-digit long terms growth. They have blended EBITDA margins between 28 and 30 percent, while their growth rate ranges from the low single digits to the high single digits. 

Ingevity is trading at a discounted price relative to other companies despite its strong market position, cashflow characteristics and potential growth. Ingevity trades at 7.9x EBITDA at a price/earnings rate of 11. This compares to its peers, which trade at 9-14x EBITDA at a ratio of 17 and 9.9x EBITDA at a ratio of 13. This is due to the fact that the market doesn’t believe in the high single-digit growth forecasts. Supply chain problems in the automobile industry are a part of why growth is slowing. This should not be permanent.

Ingevity is able to increase its international sales and offer a wider range of products with Inclusive’s active participation as a shareholder or member of the board. In an ESG-driven world, where consumers are increasingly concerned about the environment, it is important that companies embrace and communicate their ESG stories. Ingevity’s ESG story is great, but the company doesn’t recognize it as an ESG business. It can not only attract more customers but also make it easier to turn discounted pricing into premium pricing. The company sells its environmentally-friendly adhesives as packaging products at a discounted price because they are brown and not clear. It smells like pine trees. Its eco-friendly attributes are evident by this. Large corporations are going green and this adhesive might be sold more expensively.  

Inclusive will be a valuable partner in helping the Ingevity refine and communicate its ESG thesis as well as grow through ESG channels – they live and breathe sustainability. Inclusive was represented on the board by invitations to board members in seven of its previous 13Ds. This is what we would like to see.   

Ken Squire founded and is president of 13D Monitor. This institutional research service focuses on shareholder activism. Squire also is the creator and portfolio manager at the 13D Activist Fund. A mutual fund that invests primarily in activist 13D investments, 13D Activist Fund is another mutual fund. Squire is also the creator of the AESG™ investment category, an activist investment style focused on improving ESG practices of portfolio companies.