德银-美股-化工商品行业-美国化工业十一月计分卡-20171208-93页_1mb

Deutsche Bank Markets Research Summary

Core Content

This document is a November 2017 Chemicals Scorecard from Deutsche Bank, focusing on the performance of US Chemicals and key companies in the sector. It includes stock performance, valuations, and growth analysis for multiple chemical firms, with an emphasis on market outlook, investment recommendations, and valuation metrics.

Main Points

• Stock Performance in November:
  US Chemicals rose by 0.8%, while the S&P 500 rose by 2.8%.
  Notable outperformers were Ashland (ASH) with a 9.2% gain and Ferro (FOE) with a 6.4% gain.
  Albemarle (ALB) declined by 4.7%, and Axalta (AXTA) by 4.8%.

• Outperformers and Buy Recommendations:

  • Ashland: Strong '18 outlook, but organic volume growth is a concern.
    • EBITDA discount to specialty chemical peers likely to persist.
    • Jerome Peribere nominated to the board.
  • Ferro: Provided an implied 3-year EPS CAGR of 16%.
    • Driven by a cohesive portfolio, strong growth fundamentals, and a robust new product pipeline.
  • Eastman Chemical (EMN.N), DowDuPont (DWDP.N), and Axalta (AXTA.N) were highlighted as top picks with Buy ratings.

• Lithium Market Outlook:

  • Lithium prices remained tight through 1H18, with processing capacity additions expected in 2019.
  • Pricing is expected to ease in 2019.
  • Outside China, pricing is expected to "catch-up" in 2018.
  • Albemarle was downgraded to Hold due to:
    • New processing capacity coming online by 2019.
    • Valuation appears full with a 21.5x '18E EBITDA.
    • Valuation challenges expected in 2020.

• Conference Highlights:

  • The 2nd annual Lithium Supply Chain & Energy Storage Conference was held in NYC on November 16th.
  • Albemarle provided an upbeat view on lithium supply/demand, driven by electric vehicle growth.
  • Expected lithium prices to rise in mid-single digits in 2018.
  • The guidance is considered conservative given the 30% YTD price increase in 2017.

• Valuation Metrics:

  • US Chemicals (excluding ag) had a 19.0x forward P/E multiple, 28% above the 10-year average of 14.9x.
  • US Chemicals was trading at a 5% discount to the S&P 500, but the discount is considered unwarranted given structurally low US ethane prices.
  • Valuation analysis includes:
    • Forward P/E multiples.
    • Forward EV/EBITDA multiples.
    • Cash return on cash invested and its correlation with chemical sector valuations (R² > 70%).
  • Risks to target prices include:
    • Rises in energy and raw material costs.
    • Increase in interest rates.
    • Sharp improvement in end-market demand.

Key Information

• Axalta's Acquisition Situation:

  • Failed to reach a deal with Nippon Paint and Akzo Nobel.
  • The failure reflects concerns at Nippon (post-acquisition leverage) and Akzo's resistance to management control, not issues with Axalta's business.
  • High likelihood of acquisition in 3-5 years.
  • Near-to-medium term strategy includes organic growth, cost reductions, and bolt-on M&A.

• Valuation & Forecasts:

  • Valuation metrics include:
    • Forward P/E.
    • EV/EBITDA.
    • Free cash flow yield.
    • Price/Book.
    • Price/Sales.
  • Valuation tables are provided for various timeframes (2017E, 2018E) and for different companies.
  • Relative P/E and NTM P/E are used for comparison with the market and historical averages.

• Market Outlook:

  • Lithium prices are expected to remain balanced-to-tight for the next 5 years.
  • Valuation is a key factor in assessing the sector, with divergence in leverage impacting EV/EBITDA multiples.

• Valuation Tables Summary:

  • Albemarle (ALB):
    • Current NTM P/E: 22.6
    • Current Relative P/E: 123%
  • Ashland (ASH):
    • Current NTM P/E: 11.4
    • Current Relative P/E: 62%
  • DowDuPont (DWDP):
    • Current NTM P/E: 17.8
    • Current Relative P/E: 97%
  • Eastman Chemical (EMN):
    • Current NTM P/E: 11.4
    • Current Relative P/E: 62%
  • Axalta (AXTA):
    • Current NTM P/E: 11.4
    • Current Relative P/E: 62%

Conclusion

The report highlights the performance and outlook for the US Chemicals sector in November 2017, with a focus on key players like Ashland and Ferro, which outperformed the market. It also notes the downgrade of Albemarle to Hold due to valuation concerns and upcoming supply increases. The report underscores the importance of valuation metrics and growth fundamentals in assessing chemical sector stocks, with a Buy recommendation for several firms, including Eastman Chemical, DowDuPont, and Ashland, based on their strong fundamentals and growth potential.