Monday, October 26, 2009

Good News: Olin Corp Earnings Report is Perfect for Our Pair Trade with Georgia Gulf

Olin Corp (OLN) just put out their third quarter earnings press release. The results are perfect for our long-Olin / short-Georgia Gulf (GGC) pair trade.

Olin has two segments: Chlor-Alkali chemicals and Winchester ammunition.
GGC has two segments: Chlor-Alkali chemicals and Royal Group vinyl products.

I am short more GGC than I am long OLN. So, what I would ideally want is for Winchester to do really well, and Chlor-Alkali (CA) to do really poorly. And that is exactly what is happening!

At Olin, third quarter CA segment income dropped from $104 million last year to $3.9 million this year. But the Winchester segment's third quarter income increased from $9.8 million last year to $23.0 million this year.

The result is that, despite the terrible overcapacity and slump in the CA industry, Olin held its own. The stock is up a buck after hours. Olin's year-to-date 2009 EBITDA is 229.8, which is about 300 annualized. Maybe less given seasonality. But the EV/EBITDA multiple is still around 4.5.

At that multiple, and assuming that GGC hits their 2009 guidance (a stretch, given what we have seen with PPG and OLN), GGC equity has a negative value.

There are a ton of new people coming here from the Google Finance pages about Georgia Gulf and Olin. If you want to catch up, here are all of the GGC posts and all of the OLN posts from Credit Bubble Stocks. You might also like the Regency Centers pair trade.


eh said...

knock it off, will ya

eh said...


GE in poor company

CP said...

That's good to see. As you know, I own tons of puts.