DGL Price action, page-194

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DGL are trying to become an integrated "we can supply any chemical you want" house - import, formulation, blending, packaging, transport and warehousing. All of which makes sense if you are chemical manufacturer of a given size (like an international player - for example- Ecolab/Nalco). But DGL are covering a VERY broad product spread - Water treatment (Aquapac, Hardmans), private label ( Chempac, Austech), Agrichem (Opal WA), Speciality chemicals (Flexichem, RLA Polymers and AUSBlue). They've also bought some trucking business and a label manufacturer.

DGL are touting themselves as a vertically integrated supplier to market - but their history was as a storage and transport logistics company. The problem is that they are now moving out of that mould and their traditional customer base (who includes many suppliers to the end market) are feeling a little uneasy that DGL may become their competitor - and a competitor who knows where all of their customers are. This view has been pushed along by a couple of other DGL purchases - like Total Coolant Management, who are an end-market supply company. DGL's fleet isn't big enough to use all of the AdBlue that AUSBlue make or the coolant that Austech make, so DGL are becoming B2B suppliers rather than "business support".

While this shouldn't pull their share-price down, DGL may learn that the margins in chemical manufacturing aren't that great and that the ability to make margin is very dependent on your input costs. Also, they have overpaid for most of the asset purchases - and they have to hold onto the volume/margin of the acquired businesses, which can be hard in an environment where start-up barriers are low. Also, a few odd decisions (like trying to soak up ALL of the Ecolab/Nalco product deliveries - regardless of packsize/delivery size - in a fleet designed for big deliveries) and management mis-steps ( "and you can quote me on that") don't help.This will pull their share price down - and the current market price is an indicator of that.

The price should re-bound as they stabilize, but could also find a bottom south of par on the way there.