Westlake Chemical Partners is a producer of ethylene, a flammable gas that is the most abundantly produced organic compound in the world. It occurs naturally in hydrocarbons such as coal gas, natural gas and crude oil as well as ripening fruit. It is used in the manufacture of polyethylene as well as in food production and distribution. There has been some success in converting carbon dioxide into ethylene using a modified copper catalyst as well as the use of biomass as feedstock. In 2014, the Company made a key investment in this environmentally sound technology through the acquisition of Vinnolit Holdings GmbH, a leading producer of plastics and caustic soda. Since then Vinnolit has become an important source of renewable ethylene from biomass to replace fossil ethylene.
Leadership in reducing and even eliminating carbon footprint is a key to taking a long position in Westlake. The Company reported $1.6 billion in total revenue in the year 2022, providing $64.2 million in net profit or $1.82 per share. Even more important, in our view, the Company converted $463.7 million in sales to operating cash flow, sufficient to cover maintenance capital requirements and debt repayments. Strong financial performance delivers 26.7% return on capital investment, well above the Company’s cost of capital at 8.6%.
We are impressed with 18.1% excess returns, especially since a conversion to a sustainable business model requires prodigious investment of capital. We believe Westlake can succeed in bringing about a new economy.
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