Description

Stock Pitch: AMBI (Ambipar Response) – A Hidden Value in the Environmental Emergency Response Sector

Thesis:
AMBI, the US-listed subsidiary of Brazilian multinational Ambipar Group (AMBP3), presents a compelling investment opportunity due to a substantial discount to its parent company, despite the subsidiary’s growing fundamentals and synergies with the parent’s core business. With the Brazilian parent stock surging over 600% year-to-date, AMBI remains undervalued, creating a significant price dislocation in the market. This presents a unique chance for investors to capitalize on the mispricing.

Parent Company Overview (AMBP3 – Brazil-listed):

Ambipar Group (AMBP3) is a global leader in environmental management and emergency response services. The company operates across various segments, focusing on sustainability through the principles of circular economy and innovation.

1. Environmental Solutions Segment:
   Ambipar specializes in waste management, aiming to reduce natural resource consumption by reincorporating waste into production processes. Key offerings include waste collection, recycling, co-processing, reverse logistics, and carbon credits, all aimed at helping clients improve their ESG performance.
2. Ambipar Response Segment:
   This division focuses on crisis management, responding to chemical, environmental, and biological emergencies. Services include firefighting, environmental disaster response, industrial services, and mining operations. Ambipar Response also conducts accident prevention and crisis response training, providing critical expertise during emergencies.
3. Track Record of Growth:
   Historically, Ambipar has expanded aggressively through acquisitions, consolidating its market position via a roll-up strategy. However, recent strategic shifts focus on reducing leverage, increasing profitability, and reinforcing long-term growth.

AMBI: US-Listed Subsidiary of Ambipar Response

Company Overview:
In 2023, Ambipar listed its Response unit, AMBI, on the US market via a SPAC merger with HPX Acquisition Corp. Backed by 3G Capital executives, AMBI was spun off to represent the Ambipar Response segment and is currently 71% owned by the parent company.

Stock Disconnect:
Despite the parent company’s explosive growth, which has seen AMBP3 rise over 600% this year, AMBI’s US-listed stock has barely moved, resulting in a significant disconnect. Given that AMBI makes up a substantial portion of the parent’s business (about half of its EBITDA), this dislocation is unwarranted and presents a major buying opportunity.

Valuation Disparity:
While AMBP3 trades at (11.0/9.2x 2024/25 EBITDA), AMBI is valued at under ~4x LQA (Last Quarter Annualized) EBITDA. This is unusual given that both segments (Environmental Solutions and Response) contribute roughly equally to the parent’s EBITDA and have comparable growth rates and margins. If AMBI were to be valued similarly to AMBP3, its stock price would re-rate upwards to over $20 per share, representing a massive upside from the current $4.

Why Should the Multiples Be the Same?

The core rationale behind this investment opportunity is that both the Ambipar Environmental and Response segments contribute almost equally to the parent’s EBITDA, and both have demonstrated similar growth trajectories and margin profiles. There is no fundamental reason why the US-listed Response segment should trade at a fraction of the parent’s valuation. This mispricing appears to be driven by market inefficiencies, likely due to limited float, investor unfamiliarity with the story, and general SPAC fatigue.

If market rationality returns, AMBI’s stock will catch up, aligning with the parent's multiple. Either the Brazilian stock price corrects downward, or AMBI’s valuation rises to match the underlying business fundamentals.

Catalysts:

1. Earnings Results: Continued earnings strength, demonstrating similar growth trends as the parent, could serve as a catalyst for re-rating the stock.
2. Increased Float: As more shares become available in the market, investor participation could increase, driving demand.
3. Potential Share Buyback: Management may also initiate a buyback to further capitalize on the price dislocation and bolster investor confidence.

Alternative Investment: AMBI Warrants

For more speculative investors, purchasing AMBI’s warrants offers an even more leveraged way to play this opportunity. Trading at just $0.16, these warrants have a strike price of $11.50 and expire in 2028. If AMBI’s stock price were to even partially re-rate to the multiple of its parent, these warrants could provide significant returns, offering multiples of profit.

Conclusion:

AMBI represents an excellent investment opportunity in the environmental and emergency response sector. With a clear valuation disconnect from its parent company and solid growth prospects, this is a situation where patient investors can capitalize on market inefficiency. If the stock re-rates to its appropriate valuation, the upside potential is substantial. The added optionality in the form of warrants makes this an even more attractive play for those seeking high returns.

Catalyst

• Earnings
• Analyst Coverage