Valhi, Inc. (NYSE:VHI)

CAPS Rating: 1 out of 5

The Company has operations through its majority-owned subsidiaries or less than majority-owned affiliates in the chemicals, component products, waste management and titanium metals industries.

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Player Avatar Mega (99.97) Submitted: 6/19/2011 3:13:15 PM : Underperform Start Price: $14.16 VHI Score: +7.90

They own 74.9% of KRO, 72.2% of CIX, 83% of NL (excluding KRO and CIX stakes), and 100% of WCS.

At current market prices, the KRO stake is worth $2.15B ($2.87B x 74.9%)
CIX stake is worth $113M ($157M x 72.2%)
NL stake (excluding KRO and CIX) is worth negative $154M
(($812M NL - $861M for 30% of KRO - $137M for 87% of CIX) * 83%)

That's a total of $2.11B in public subsidiaries. So WCS and VHI corporate would need to be worth $2.71B to add up to VHI's market cap of $4.82B.

VHI corporate is not worth much of anything, since sugar and titanium assets are offset by debt. WCS has only 144 employees and one large landfill site. WCS lists ES, ECOL, PESI as key competitors, all of which are worth less than $500M. I don't believe it is worth anywhere near $2.71B.

Additionally VHI subsidiary pension funds are underfunded, and considering their lines of business they are likely to face more environmental lawsuits. Their subsidiaries are also highly cyclical and earnings currently seem to be on the high end of their range, making valuation suspect.

Thesis: Short VHI, long NL. NL is the real "sum of the parts" story. However, the stronger conviction part of the trade is short VHI.

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