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Innospec Inc. (IOSP): Powering the Energy and Chemical Industries

Innospec (IOSP) is a maker of additives and other specialty chemicals to oil refineries and other chemical and industrial companies worldwide. The company’s three primary areas of business are: fuel specialties, active chemicals, and octane additives. The fuel specialties unit makes additives used in a variety of fuels for automobile, marine and various other engines. The active chemicals business supplies surfactants and emollients for personal care and other chemical companies, while the octane additives unit produces tetra ethyl lead for use in automotive gasoline. Innospec also has an environmental cleanup operation that helps rehab old factories.

In 2007, fuel specialties accounted for 62.2 percent of Innospec’s revenue. Active chemicals made up 22.2 percent and octane additives comprised the remaining 15.6 percent. Innospec, based in the United Kingdom, was spun-off from Chemtura Corp. in 1998. Of note to investors, Innospec repurchased 752,000 of its shares, or three percent of the total outstanding, last year. The company said in July that second-quarter sales rose to $145.3 million from $141.1 million a year earlier. However, net income plunged as the company had to write down several botched acquisitions.

The company’s main competitors are NewMarket Corp. and privately held Infineum International Limited. Institutional support of Innospec shares is strong, with 116 institutions owning shares, including JP Morgan, State Street, Fidelity and Vanguard. Two sell-side analysts follow Innospec, one with a “buy” rating, the other with a “strong buy” rating on the stock. Earlier this year, Innospec shares were recommended by the manager of the prestigious Paradigm Value Fund, on the basis that Innospec’s diesel additives products could be a boost to the company’s bottom line as more companies use diesel fuel but need to meet environmental specifications in order to do so.

Shares of Innospec closed Thursday at $13.92 and have traded between $13.40 and $25.84 over the past 52 weeks. The company has a market capitalization of $328.4 million and trades about 186,000 shares a day.

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