Archive for July, 2014

Accretive Health (ACHI) – The Definition of “Special”

Download PDF

Accretive Health (ACHI) is the definition of “special”. “Special” is in quotes because in this case, special is not a good thing. Actually, the Company is a complete mess. Just take a look at what’s happened over the past three years:

So to recap: We have a company with a lameduck CEO, no financials, trading over the counter. Now can you understand why I call this company “special”?

After reading all this, you might think the business is permanently impaired. You’d be wrong.

Rayonier Advanced Materials (RYAM) – Will an Unnatural Shareholder Base Create an Opportunity?

Download PDF

Note: this write-up was sent out to my network on 26-Jun when RYAM was trading at $36 / share. It has since risen to $42. If you are an accredited investor / buysider and want to get on my VIP research list, email me at analyst @ this domain.

Rayonier (RYN) is known to most investors as a timber REIT. But to industrial and manufacturing companies, Rayonier is the leading supplier of specialty cellulose, a product used in a wide variety of end market applications (cigarette filters, cosmetics, pharmaceuticals, LCD display screens, and more). On 27-Jun, investors were introduced to this second business as Rayonier (RYN) completed its spin-off of Rayonier Advanced Materials (RYAM; here).

What makes this spin particularly interesting is that RYN is a REIT. The investor base interested in owning RYN is likely to be very different than the investor base interested in owning RYAM. So it’s possible we experience a situation where yield-hungry investors indiscriminately dump RYAM over the coming weeks. And indiscriminate selling creates opportunity.

What’s also interesting is that the CEO of RYN is now the CEO of RYAM. Now let’s think about this… Why would the most knowledgeable person in the Company choose to go with the Advanced Materials business? My guess in one word: opportunity.

High-level, here’s how the Advanced Materials business works:

RYAM buys wood chips (hardwood or softwood) and through a sophisticated process of pulping, cooking, bleaching and finishing, produces a very unwood-like product known as dissolving pulp (you can think of it as a natural plastic). Here’s an image pre- and post-processing:

Dissolving Pulp

This dissolving pulp is then marketed to customers as commodity cellulose and specialty cellulose, depending on the grade / characteristics. RYAM is the worldwide leader in the specialty cellulose business, with greater than 2x sales volume versus its competition. It ranks #1 in acetate (end product: cigarette filters, textiles, LCD film), is top 4 in ethers (end product: pharma, food products), and #1/#2 in high-strength viscose/specialty (end product: tire cords, casings, explosives).

There are a few key points to understand about this business: