CHEMICALSSCORECARD：OCTOBERSCORECARD1109

1、top picks buy buy deutsche bank markets research north america united states industrials chemicals/commodity periodical chemicals scorecard date 8 november 2012 david begleiter, cfa october scorecard m buy; +7%) with its purchase of champion technologies (strengthening the companys fast growing ener

2、gy services business), cytec (cyt; buy; +5%) with its coating resins divesture and associated $600mm share buyback and eastman chemical (emn; buy; 4%) with its smooth integration of recently acquired specialty chemicals company solutia. tio2 and fertilizer stocks lagged. for companies levered to tio

3、2, 2h12 is proving to be challenging as tio2 fundamentals have continued to deteriorate with prices down 5%, 14% and 20% from their peaks in north america, europe and asia, respectively. price weakness and elevated inventory levels are causing customers to defer purchases. notable underperformers fo

4、r the month with exposure to tio2 are research analyst (+1) 212 250-5473 ramanan sivalingam associate analyst ( ) 212 250-8619 jermaine brown research associate (+1) 212 250-3624 jermaine- ashland (ash.n),usd72.23 lyondellbasell (lyb.n),usd52.78 dupont (dd; buy; -11%) and kronos (kro; hold; at-11%).

5、 companies levered to potash experienced weakening fundamentals as unabsorbed supply, stemming from unsettled contracts in china and india, created an oversupply in north american potash (39% above the 5-year avg). notable underperformers with exposure to potash are mosaic (mos; hold; - 9%) and pota

6、shcorp (pot; hold; -7%). irs ruling and mlp implications for olefin producers. other notable performers for october were companies that stood to gain from a recent irs ruling which allows olefin-related income to qualify for mlp treatment including westlake (wlk; hold; +4%), lyondellbasell (lyb; buy

7、; +3%) and dow chemical (dow; hold; +1%). a private letter ruling (plr), requested by williams companies (wmb; nr) concluded that “income derived from processing ngls into olefins will constitute qualifying income” for mlp purposes. while this ruling may be beneficial to some commodity names, each p

8、lr is company specific and, even if qualified, the asset may not necessarily be suitable for mlp status. however with the opportunity now available to put olefin-producing assets into mlps, this is a potential eps tailwind in 13e. absolute valuations look reasonable, but macro weakness may limit ups

9、ide todays 12x fwd p/e multiple for us chemicals (ex-ag) is 19% below the 15-yr avg. while we view relative valuation (currently 14% below the s 2) forward ev/ebitda multiples (where leverage diverges from that of peers, also vs historical averages); 3) our calculation of cash return on cash investe

10、d and the strong correlation (r270%) we have found between chemical sector valuations and returns on capital. risks to forecasts include rises in energy, raw materials, n-t interest rates or sharp improvement in end-market demand (see p. 73-75). _ deutsche bank securities inc. all prices are those c

11、urrent at the end of the previous trading session unless otherwise indicated. prices are sourced from local exchanges via reuters, bloomberg and other vendors. data is sourced from deutsche bank and subject companies. deutsche bank does and seeks to do business with companies covered in its research

12、 reports. thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. investors should consider this report as only a single factor in making their investment decision. disclosures and analyst certifications are located in appendix

13、1. mica(p) 072/04/2012. 8 november 2012 chemicals/commodity chemicals scorecard table of contents stock performance. 3 current valuations. 6 forward company valuations. 15 growth include dividends figure 2: ranking by 3-month performance (august, 2012- october, 2012) 40% 30% 20% 10% 0% (10%) (20%) (

14、30%) source: deutsche bank, factset; include dividends deutsche bank securities inc.page3 ggc 97% lybagu wlk shw monppgemn valeclash cyt hun cmp rpm s includes dividends figure 4: ranking by 12-month performance 120% 100% 80% 60% 40% 20% 0% (20%) (40%) (60%) (80%) (100%) source: deutsche bank, facts

15、et; includes dividends page4deutsche bank securities inc. jan-99jan-00jan-01jan-02jan-03jan-04jan-05jan-06jan-07jan-08jan-09jan-10jan-11 agulyb alb arg valcytashapdoln ce ggc dowmos roc shw wlkcmpfmchunemnppg foecbt eclfuldd jan-12 8 november 2012 chemicals/commodity chemicals scorecard figure 5: ch

16、emicals sector index 10-year performance (january 1999-present) 300 250 200 150 100 50 s based on month-end share price figure 10: ranking by 2013e ev/ebitda 12 11 10 9 8 7 6 5 4 3 2 source: deutsche bank securities inc. estimates and company information; based on month-end share price deutsche bank

17、 securities inc.page7 10.9% 10.5%10.4% 9.4%9.1% 7.1%7.0%6.7% 6.3% 5.5%5.4%5.2%5.0%4.9% 4.8%4.7%4.6%4.5% 3.7%3.4% 2.5%2.4%2.1% 1.6%1.4%1.4% 1.0% (0.3%) lybalbval ashapdggcarg monwlk cmp cyt ce hunrpmfmcdow mosrocemnkro shw 31.4% 23.0% 18.8% 17.6% 14.7% 14.6% 13.9%13.7% ppg 13.3% 12.0% 11.9% 10.4% 11.

18、2% 9.7% 8.4%8.0%8.0%7.6% 7.2%7.1%7.1%6.9%6.7% 5.1%4.9%4.8% 4.0%3.2% cmpoln -2.2% ashvalfoelyb dd alb rockroshw argcyt cbtapd ce pot dowmon wlkrpmfmchun ppg mosemn fulecl px foe dd potcbt eclful px (3.4%) 8 november 2012 chemicals/commodity chemicals scorecard figure 11: ranking by 2012e free cash fl

19、ow yield (defined as free cash flow per share divided by share price) 12% 10% 8% 6% 4% 2% 0% (2%) (4%) (6%) (8%) source: deutsche bank securities inc. estimates and company information. based on month end share price. figure 12: ranking by 2012e free cash flow yield ii (defined as ebitda-capex divid

20、ed by share price) 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% source: deutsche bank securities inc. estimates and company information. based on month end share price page8deutsche bank securities inc. dd argshwcmpmonfmcppg px 5.5 8.5 5.4 4.7 4.6 4.1 4.0 3.9 3.8 3.5 3.4 3.43.4 3.0 2.7 2.5 2.5 2.4 2.3 2.1

21、2.0 1.9 1.8 1.7 1.6 1.41.41.41.4 valashalb lyb rocapd cytoln ggcwlk 7.8% 4.5% 4.4% 3.9%3.8% 3.4% 3.1% 2.7% 2.5% 2.5% 2.2%2.2% 2.2% 2.0% 1.4% 1.4% 1.4% 1.4% 1.2%1.2%1.1% 1.1% 0.8% dow rpm mos emn 0.8%0.7% krohun 0.6% ce lybalb val argmonash olnapdcmpcyt dow rpmhunfmc dd px shw mosrockro cbt cbtppgpot

22、ecl ful 0.5% foepotcbt ce eclful 0.4 8 november 2012 chemicals/commodity chemicals scorecard figure 13: ranking by 2012e price/book 9 8 7 6 5 4 3 2 1 0 source: deutsche bank securities inc. estimates and company information. based on month end share price figure 14: ranking by 2012e dividend yield 9

23、% 8% 8% 7% 7% 6% 6% 5% 5% 4% 4% 3% 3% 2% 2% 1% 1% 0% source: deutsche bank securities inc. estimates and company information; based on month end share price deutsche bank securities inc.page9 4.2 3.5 3.3 2.8 2.22.2 2.2 2.2 1.9 1.9 1.61.6 1.8 1.51.5 1.4 1.3 1.31.3 1.1 1.11.1 1.0 0.90.90.9 0.6 0.7 val

24、ashalbarg roc shwmonwlk cmpkro cyt apdfmc olnlybpot 25.7% 22.6% 11.6% 12.6% 10.6% 9.9%9.6%9.2%9.2% 8.0% 7.4%7.3% 6.6%6.6% 7.8% 5.9%5.9%5.7%5.3%5.1% 4.9% 3.7% dow mos rpmemn 3.6% 2.0% px 3.6% hun ppg ashfoe dd lyb roc alb kroarg cbtoln shwggc dow moswlk hunrpmemnfmcapd pot ce ppgfulecl 0.9% foe px ec

25、l dd cbt ce ful 0.3 8 november 2012 chemicals/commodity chemicals scorecard figure 15: ranking by 2012e ev/sales 5 4 3 2 1 0 source: deutsche bank securities inc. estimates and company information figure 16: ranking by 2013e free cash flow yield (defined as free cash flow per share divided by share

26、price) 30% 25% 20% 15% 10% 5% 0% source: deutsche bank securities inc. estimates and company information page10deutsche bank securities inc. 34.8% 31.5% 20.7% 30.6% 19.6% 17.6%17.3% 15.5%15.3% 16.7% 13.2% 13.1% 11.1% 11.1%10.9% 10.6% 10.6%10.3% 12.4% 9.6%9.3% 8.5%8.4%8.4% 7.0%6.3%6.0% 7.1% 5.4% apd

27、foe 0.4 alblyb ashvaloln ggcargwlkmon cyt ce dow mos cmpfoerpmfmchun dd emn ful rockro cbt 5.15.0 4.7 7.3 4.5 3.8 3.6 3.3 3.6 3.2 2.82.8 2.4 2.3 2.6 2.2 2.22.1 2.12.12.1 1.9 1.4 1.31.3 1.7 shw potppg ecl 1.31.2 valash dd argshwcmpmonfmc ppg px lybalbcytroc ggcwlk dow rpm mos emnkroolnapd pot hun cbt

28、 ce eclful 1.2 px 5.3% 8 november 2012 chemicals/commodity chemicals scorecard figure 17: ranking by 2013e free cash flow yield ii (defined as ebitda-capex divided by share price) 40% 35% 30% 25% 20% 15% 10% 5% 0% source: deutsche bank securities inc. estimates and company information. based on mont

29、h-end stock price figure 18: ranking by 2013e price/book 8 7 6 5 4 3 2 1 0 source: deutsche bank securities inc. estimates and company information deutsche bank securities inc.page11 3.6 krodowddoln rpmlyb apdrocppg cmp huncbt px mosarg monemnalb val pot ashshwecl cyt fmcful ce 2.3%2.2% 1.9% 1.8%1.7

30、%1.7% 1.5% 1.4%1.4% 1.3% 1.2% 1.1% 0.9% 0.9% 0.8% 0.6% 3.1%3.0% 3.0% 2.8%2.7%2.7% 3.9% 3.9% 3.6% 4.3% 4.5% pot 3.4 3.1 2.6 2.2 2.2 2.0 2.0 1.8 1.7 1.6 1.5 1.4 1.3 1.3 1.3 1.2 1.2 1.1 1.1 1.0 0.9 0.90.9 0.8 0.80.8 px moncmpapd fmceclargalbmosshwcytrocvalppg dd emncewlkrpmash olnful cbtdowkrolybhun 0.

31、6 foe 0.3 8 november 2012 chemicals/commodity chemicals scorecard figure 19: ranking by 2013e dividend yield 5% 5% 4% 4% 3% 3% 2% 2% 1% 1% 0% source: deutsche bank securities inc. estimates and company information figure 20: ranking by 2013e ev/sales 4 3 2 1 0 source: deutsche bank securities inc. e

32、stimates and company information page12deutsche bank securities inc. pot 3.6 mon potmon px cmpmosfmccytalbeclapdshwargwlkvalppg dd emnroccerpmoln 1.7 1.5 1.5 1.3 1.3 1.2 1.1 1.1 1.1 1.0 0.9 0.8 ful 0.8 krocbtashlybdowggchunfoe 0.4 0.3 0.1 0.8 0.70.70.7 0.6 1.8 1.8 1.9 2.0 2.1 2.5 2.9 3.4 4.0 3.2 2.7

33、 2.3 2.0 2.0 1.8 1.6 1.5 1.5 1.4 1.4 1.21.2 1.2 1.1 1.01.0 0.9 0.9 0.8 0.80.7 0.7 0.7 0.6 px cmpmosfmcalbapdshweclargcytval wlkppg dd emnrocce rpmolnlybkrofulashcbt dow 0.6 ggc 0.4 hun 0.3 foe 0.1 8 november 2012 chemicals/commodity chemicals scorecard figure 21: ranking by 2012e price/sales 5 4 3 2

34、 1 0 source: deutsche bank securities inc. estimates and company information figure 22: ranking by 2013e price/sales 4 3 2 1 0 source: deutsche bank securities inc. estimates and company information deutsche bank securities inc.page13 pot hun rpm potmonoln fmc mos ggc ppgemn roc shwashkroval lybapde

35、cldd ce albcmp argdow px wlkcbtfulfoecyt (0.4%) (0.7%) 7.6%7.5%7.3% 7.2% 7.2%6.9% 6.5% 6.4% 5.9% 5.4%5.2% 4.7% 4.0% 3.2%3.0%2.8% 1.9%1.7% 1.1% 7.6% 8.4% 9.6%9.6% 9.9% 17.9% 18.2% 18.9% 21.4% 26.4% 25.0% 16.8% 15.4% 14.8% 13.2% 11.0% 9.0% 8.9%8.5% 8.0%7.5% 7.3%6.7% 6.6% 6.5%5.9% 5.6%5.4% 5.3% 5.3% 5.

36、3% 4.7%4.4% 4.2% 3.8% 3.0% 2.2% 1.5% moshun oln rpmmon argalbemn krolybddfulval ppgfmc cmp roceclce pxashshw ggc wlkdowfoecbtapdcyt (2.1%) 8 november 2012 chemicals/commodity chemicals scorecard figure 23: ranking by 2012e free cash flow/sales 25% 20% 15% 10% 5% 0% (5%) source: deutsche bank securit

37、ies inc. estimates and company information figure 24: ranking by 2013e free cash flow/sales 30% 25% 20% 15% 10% 5% 0% (5%) (10%) source: deutsche bank securities inc. estimates and company information page14deutsche bank securities inc. jan-90 jan-91 jan-92 jan-93 jan-94 jan-95 jan-96 jan-97 jan-98

38、jan-99 jan-00 jan-01 jan-02 jan-03 jan-04 jan-05 jan-06 jan-07 jan-08 jan-09 jan-10 jan-11 jan-12 12 10 8 6 4 8 november 2012 chemicals/commodity chemicals scorecard forward company valuations figure 25: db u.s. chemicals universe p/e ratio, january (1991-present) 24300%average ntm p/e 22 20 18 15yr

39、 avg. = 14.7 oct-12 = 12.1 250% 200% current: 12.1 3-year: 12.9 5-year: 12.9 16 14 150% 10-year: 14.2 15yr avg. vs. s healthcare 18%; consumer 15%; energy 3%, safety repair food; 6%; analytical: 2% utilities: 2%, petrochemical: 7% “auto paints consumer consumer industrial performance apps 7%; textil

40、es 5% ; food paper plastic : 4%; adhesives: 3% ; other: 9% “auto food ingred, ref other packaging 3%; chemicals/ petchem 5%; textile/ apparel 5%; plastics 3%; other industrial 7%; aeropsace 4%; paper 1%; healthcare 1%; personal care 3%.“construction” includes residential, commercial construction” ea

41、stman6%11%2% packaging 28%; tobacco 18%; consumables 10%; durable goods 7%; industrial chems agriculture 2%; energy, fuel, containers 8%; household furnishings 7%; industrial 6%; others 6% adhesives: 72%; paints: 8%; packaging: 4%; insulating glass: 4%; consumer: 2% lyondellbasell7%10% refining/fuel

42、s:35%;packaging:18%;consumer:12%;coatings:4%; textiles/furnishings:4%; other:10%. “auto industrial goods 10%; chemical products: 5%; aerospace 4%; marine 3% (auto consists of oem 19%, auto aftermarket 11%) praxair7% manufacturing 24%; chemicals 10%; energy 13%; food and beverage 7%; aerospace 2%; he

43、althcare 10%; metals 16%; other 11% rockwood holdings11%13%8.0% metal treatment 17%; chemicals/plastics 14%; life sciences 12%; consumer products 2%; paper 2%; environmental 2%; other 8% valspar3%30% industrial 36%, packaging 21%, other 10% “auto * represents 2011 data; nd = not disclosed figure 135

44、: ranking by 2011 exposure to the us 100% 90% 80% 70% 100% 89% 76% 68% 61% 60% 50% 40% 30% 54% 54% 53% 52% 52% 49% 47% 44% 42% 41% 40% 39% 35% 35% 35% 34% 32% 28% 26% 20% 20% 10% 0% source: deutsche bank, factset, company data deutsche bank securities inc.page65 rockroomnmon dow cyt ashval ce mosemn

45、 mmm mmm omnmonwlk px ful ppg ecl dd agu cytashvalapd ce cmpfoe dd emn ful ppg ecl px 8 november 2012 chemicals/commodity chemicals scorecard figure 136: ranking by 2011 exposure to europe 80% 70% 69% 60% 60% 50% 41% 40% 40% 35% 34% 30% 20% 30%30% 29% 26%26% 24% 22% 19% 16% 15% 13%13% 10% 0% source:

46、 deutsche bank, factset, company data figure 137: ranking by 2011 exposure to asia- pacific 35% 31% 30% 8% 6% 25% 23% 22% 21% 20% 18% 17% 16% 15% 13%13% 12%12% 11% 10% 9% 7% 5% 1% 0% source: deutsche bank, factset, company data page66deutsche bank securities inc. val dd apd ce pot mos 8 november 201

47、2 chemicals/commodity chemicals scorecard figure 138: ranking by 2011 exposure to china 14% 12% 12% 10% 10% 8% 6% 9% 4%4% 4% 2% 2% 0% source: deutsche bank, factset, company data deutsche bank securities inc.page67 q108q208q308q408q109q209q309q409q110q210q310q410q111q211q311q411q112q212q312 q104q204

48、q304q404q105q205q205q305q106q206q306q406q107q207q307q407q108q208q308q408q109q209q309q409q110q210q310q410q111q211q311q411q112q212q312 8 november 2012 chemicals/commodity chemicals scorecard figure 139: us chemicals selling price trends (2004-present) 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% (5%) (10%) (

49、15%) (20%) (25%) commoditiesspecialties/differentiatedsgases source: deutsche bank securities inc. estimates and company information figure 140: us chemicals volume trends (2004-present) 30% 20% 10% 0% (10%) (20%) (30%) commodities gases source: deutsche bank securities inc. estimates and company in

50、formation page68 specialties/differentiateds industrial production: chem index deutsche bank securities inc. deutschebanksecuritiesinc. page69 figure 141: chemicals valuation ratios market segment/price52-weekmkt capp/e ratiop/e rel. to s 2) forward ev/ebitda multiples (where leverage diverges great

51、ly from that of peers, also vs. historical averages); 3) our adjusted calculation of cash return on cash invested (“roic”) and the strong correlation (r270%) we have found between chemical sector valuations and returns on capital. risks: chemicals volumes are tightly linked with industrial productio

52、n, while input costs are closely tied to energy prices (e.g. oil, natural gas). accordingly, key risks to our forecasts include a recession in overall gdp (domestic or international, depending on company-specific overseas exposure), a surge in energy prices, and sharp deterioration (or improvement,

53、in select cases) in chemicals-intensive housing or automotive production. ashland valuation our price target is based on ashland trading at 6.2x 14e ebitda in 12 months, an 13% discount to specialty chemical peers currently trading at 7.1x current year ebitda. we believe this discount is justified b

54、y roughly 40% of ashlands sales being derived from low margin, highly competitive and somewhat commoditized businesses in water treatment chemicals, paper chemicals elastomers and unsaturated polyester resins. our target is also supported by our sum-of-the-parts model which yields an $85/share equit

55、y value for ashland as well as our forecast of 9.7% roic in 2012e and 8.4% roic in 2013e, and the close correlation we have found (r275%) between chemical sector valuations and roic. risk key risks include failure of pricing actions to keep pace with rising raw material costs (key raw materials incl

56、ude base oil, styrene monomer, butadiene, propylene glycol, caustic soda, guar and wood pulp), a slowdown in the pace of the economic recovery in auto and construction markets, a strengthening of the us dollar (every 1% rise reduces ebitda by $2mm) and a failure to achieve isp acquisition synergies.

57、 lyondellbasell valuation our $60 price target is based on lyondellbasell trading at roughly 10 x 13e eps in 12 months, roughly in-line with commodity chemical peers currently trading at 10 x current year eps. we believe this multiple is justified given lyondells north american cost advantage underp

58、inned by low cost ngl feedstocks. supporting our price target is a dcf derived value of $80 (based on a wacc of 9.0% risk-free rate: 4.0%, beta: 1.35%, equity risk premium: 4.5% and a terminal growth rate of 2.0% (in-line with the industry average terminal growth rate). risk key risks include 1) a n

59、arrowing of the oil-gas ratio which could erode lyondellbasells us gulf coast cost advantage versus european and asia petrochemical producers, 2) higher than expected ethane (ethylene feedstock) prices, 3) a stronger us dollar which could impede lyondellbasells ability to export chemicals and plastics from its us gulf coast operations, 4) heightened competition in export markets from lower cost middle deutsche bank securities inc.page73 8 november 2012 chemicals/commodity chemicals scorecard east petrochemical producers, 5) slower economic growth in either developed or emerging markets, 6) a