德银-美股-化工商品行业-化工业1月份排行榜-20180205-93页_1mb

Deutsche Bank Markets Research Summary - January 2018

Core Content

This report from Deutsche Bank provides an analysis of the performance and valuations of US Chemicals and Industrial Gases companies in January 2018, with a focus on stock performance, valuations, and key company insights.

Main Points

• Stock Performance in January 2018:

  • US Chemicals as a whole rose by 4%, outperforming the S&P 500 by 1.6%.
  • Trinseo and OMNOVA were the top performers, with gains of +13.6% and +10.0% respectively.
  • Trinseo's strong Q4 results exceeded expectations, driven by performance in both higher multiple performance materials and commodity businesses.
  • OMNOVA reported a 5% volume growth in Q4, with a fundamentally solid performance.

• Industrial Gases Performance:

  • Praxair saw a significant 7% volume increase in Q4, marking its best volume growth since Q1 2011.
  • The growth was ~2/3 organic and ~1/3 from new projects.
  • Air Products showed continued improvement in its base business (B/B) with FQ1 B/B sales up 4% compared to 5% in FQ4.
  • The report highlights that base business growth and capital deployment are key drivers for Air Products' share price.

• Company Upgrades and Insights:

  • Fuller was upgraded to Buy due to increased confidence in achieving its 2020 EBITDA target of $600MM.
  • The raw materials issue is viewed as transitory, with management and analysts confident that price increases will offset these costs by the end of Q2.
  • Fuller's recent $1.6B Royal Adhesives acquisition has identified more synergy opportunities than expected, boosting confidence in its financial outlook.

• Trinseo Valuation and Strategy:

  • Trinseo's 20% valuation discount to peers is a key factor in its investment appeal.
  • Its 9.1% FCF yield and 13% CAGR in EBITDA growth for the Performance Materials segment are notable.
  • The CEO's focus on M&A and using strong cash flows from the Basic Plastics & Feedstocks segment to grow the higher multiple Performance Materials segment is seen as a potential driver for the valuation and share price.

• Valuation Analysis:

  • The current 19.3x forward P/E for US Chemicals is 29% above the 10-year average of 14.9x.
  • US Chemicals are currently 8% discounted to the S&P 500, which is considered unwarranted given structurally low US ethane prices.
  • The report suggests that valuations look reasonable but macroeconomic weakness could limit upside potential.

Key Companies and Their Performance

Valuation Metrics

• Forward P/E (US Chemicals, ex-ag): 19.3x (29% above 10-year average of 14.9x).
• Valuation Discount to S&P 500: 8% (vs. a 10-year average of 4%).
• Valuation Drivers: Forward P/E, EV/EBITDA, and cash return on invested capital are used to evaluate companies.
• Key Valuation Ratios:
  • Trinseo: 20% discount to peers, 9.1% FCF yield.
  • Fuller: Raised EBITDA targets, increased confidence in 2020 performance.
  • OMNOVA: Fundamentally strong performance, 5% volume growth.

Risks

• Risks to achieving target prices include:
  • Rises in energy and raw material costs.
  • Interest rate increases.
  • Sharp improvements in end-market demand.

Top Picks

• Eastman Chemical (EMN.N): Buy, $99.27
• Ashland (ASH.N): Buy, $73.87
• DowDuPont (DWDP.N): Buy, $70.89

Conclusion

The report highlights that while US Chemicals as a sector showed positive performance in January, valuations are considered reasonable but could be impacted by macroeconomic factors. Trinseo and OMNOVA stood out with strong stock performance, while Fuller was upgraded due to improved EBITDA expectations. The report suggests that M&A activity and growth in higher multiple segments could be key drivers for future valuation improvements.