So after the sale of Criteo the portfolio has been suffering from way too high (unintended) cash levels (17%). Somewhat hurtful in a market which just keeps rallying. So it’s high time to add a new holding to the portfolio.
Why LG Chem
Today I initiate a full position at 7% in LG Chem listed in Korea. This is large Chemicals company that also happens to be one of the major battery manufacturers in the world. LG Chem has also had the most sophisticated batteries for electric cars, in terms of cost per kWh and I hope they will defend that position. Due to this technical advantage LG Chem has tied many car manufacturers to its list of customers. Among these are Chevrolet and the Chevy Volt seems to be selling well and soon the all electric Chevy Bolt is going to be released.
Although my main reason for buying LG Chem is their growth potential in batteries, one have to be respectful that 85% of their current sales comes from elsewhere and mainly from the Basic Materials & Chemicals division, which produce different type of petrochemical products. What I like about this, is that the battery industry at the moment is in a stage of heavy investments. Some serious cash is needed to build and ramp up production of the next gen batteries. Most of the smaller players can’t handle that, thanks to LG Chems other divisions generating significant cash, they are able to do just that. So I believe I get the petrochemical business at a reasonable multiple with good potential for growth in the battery division over the coming 5-10 years. This is a very long-term play though and much can happen on the way there.