The Long and Short
Strong first half for Alpek before renewed uncertainty
This material is a Marketing Communication and does not constitute Independent Investment Research.
The stampede into the bonds of Mexico’s chemical manufacturer Alpek has tightened yields from above 8% at the beginning of the year back to near 6% lately. And despite positive near-term fundamentals, profit taking after earnings should take yields back towards 7% in the coming sessions, dragging yields on Mexico’s Orbia wider and more favorably providing relative value compared to Nemak bonds yielding 7%.
Better product pricing for Alpek in January and February together with the Persian Gulf-induced price spikes in March drove stronger sequential and year-on-year earnings for the first quarter this year. EBITDA of $150 million rose 50% over the fourth quarter of 2025 and 19% over the same period last year. Day-to-day geopolitical uncertainty in Iran makes guidance for the rest of the year highly uncertain, though the company does expect to report around $200 million in second quarter comparable EBITDA. This would mean that 64% of the upper range of the existing $450 million to $550 million guidance will be reached by June 30, likely resulting in the company exceeding the existing metric. Guidance should be formally updated at the next earnings call in July and may also be a component of some ratings outlook amendments over the same timeframe, with all three agencies currently holding negative outlooks.
The existing margin environment is unsustainable, however, and an eventual conflict resolution should begin a process of normalization. However, this tail process is likely to last for several months, meaning that Alpek is likely to generate in excess of $600 million in EBITDA in 2026, excluding the incremental benefit from asset sales. This would drive net leverage to below 3.0x for the first time since 2024.
In the first quarter, free cash flow was an estimated $72 million, driving net debt lower and bringing net debt-to-EBITDA to 3.9x compared to 4.4x at the end of 2025. The higher leverage motivated the downgrades to high yield the price volatility in the capital stack. Spreads widened as much as 150 bp to offer a yield in excess of 8% in the belly of the curve (2031s). At ‘BB+/Ba1/BB+’ with negative outlooks by all, valuations became interesting for the first time in many quarters and that was before the eruption in the Gulf. A lot has changed since.
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