LyondellBasell Industries NV

Transcription

1 March 12, 2015 LyondellBasell Industries NV Current Recommendation Prior Recommendation Underperform Date of Last Change 11/09/2011 Current Price (03/11/15) $85.11 Target Price $89.00 NEUTRAL (LYB-NYSE) SUMMARY We have retained our Neutral rating on LyondellBasell. The company s profit tumbled in the fourth quarter of 2014, hurt by a sizable inventoryrelated charge. Revenues fell year over year on declines in most segments. Adjusted earnings topped the Zacks Consensus Estimate while sales missed. LyondellBasell remains on track with its expansion projects that are expected to boost capacity and add to its earnings. The company also remains committed to boosting shareholder returns by leveraging healthy cash flows. However, LyondellBasell is exposed to volatility in raw material and energy costs. Lower crude oil prices will also affect its margins in SUMMARY DATA 52-Week High $ Week Low $70.61 One-Year Return (%) Beta 2.00 Average Daily Volume (sh) 4,026,102 Shares Outstanding (mil) 477 Market Capitalization ($mil) $40,597 Short Interest Ratio (days) 1.98 Institutional Ownership (%) 70 Insider Ownership (%) 1 Annual Cash Dividend $2.80 Dividend Yield (%) Yr. Historical Growth Rates Sales (%) 2.9 Earnings Per Share (%) 18.9 Dividend (%) 96.4 using TTM EPS 9.5 using 2015 Estimate 11.2 using 2016 Estimate 9.9 Zacks Rank *: Short Term 1 3 months outlook 3 - Hold * Definition / Disclosure on last page Risk Level * Average, Type of Stock Large-Growth Industry Chem-Diversifd Zacks Industry Rank * 201 out of 267 ZACKS CONSENSUS ESTIMATES Revenue Estimates (In millions of $) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) ,669 A 11,103 A 11,152 A 11,138 A 44,062 A ,135 A 12,117 A 12,066 A 10,290 A 45,608 A ,534 E 10,268 E 10,495 E 9,295 E 39,592 E ,529 E Earnings Per Share Estimates (EPS is operating earnings before non-recurring items, but including employee stock options expenses) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) 2013 $1.56 A $1.60 A $1.51 A $2.11 A $6.76 A 2014 $1.63 A $2.22 A $2.51 A $2.48 A $8.92 A 2015 $1.87 E $1.90 E $1.89 E $1.93 E $7.59 E 2016 $8.64 E *Note: EPS in 2013 do not add up to the annual figure due to rounding off. EPS in 2014 do not add up to the annual figure due to one-time adjustments. Projected EPS Growth - Next 5 Years % Zacks Investment Research, All Rights reserved S. Riverside Plaza, Chicago IL 60606

2 OVERVIEW Based in Rotterdam, the Netherlands, LyondellBasell Industries N.V. (LYB) is among the leading plastics, chemical and refining companies globally with operations across 18 countries. The company s products are used across a bevy of industries including electronics, automotive parts, packaging, construction materials and biofuels. LyondellBasell, which emerged from Chapter 11 bankruptcy in 2010, generated revenues of roughly $45.6 billion in It operates through five segments Olefins & Polyolefins Americas; Olefins & Polyolefins - Europe, Asia, International; Intermediates and Derivatives; Refining; and Technology. The Olefins & Polyolefins Americas division makes and markets olefins, including ethylene and ethylene co-products, and polyolefins. The Olefins & Polyolefins - Europe, Asia, International unit is engaged in the production and distribution of olefins, including ethylene and ethylene co-products, polyolefins and polypropylene compounds. LyondellBasell is a leading producer of olefins (a major petrochemical which is a key building block for a vast spectrum of chemicals, plastics and synthetics) and polyolefins globally. Polyolefins are thermoplastics that are used in a number of applications and products. The Intermediates and Derivatives segment manufactures propylene oxide (PO) and its co-products and derivatives, acetyls, including methanol, ethanol, ethylene oxide and its derivatives, and oxygenated fuels (oxyfuels). The Refining segment refines heavy, high-sulfur crude oil and different types of other crude oils as well as sources available on the U.S. Gulf Coast. The company s Houston refinery in Texas has been designed to refine heavy, high-sulfur crude oil. LyondellBasell s Technology segment develops and licenses chemical and polyolefin process technologies and also makes and distributes polyolefin catalysts. LyondellBasell was the second-largest producer of ethylene in North America in 2014 with annual ethylene rated capacity of 10.7 billion pounds (as of Dec 31, 2014), representing around 14% of total North American ethylene production capacity. It was also the biggest producer of polypropylene with an annual capacity of 3.3 billion pounds, or roughly 18% of the North American capacity. REASONS TO BUY LyondellBasell is executing its expansion projects to leverage the U.S. natural gas liquids (NGLs) advantage. The company restarted its methanol plant at Channelview, Texas, in fourth-quarter 2013 to benefit from low-cost natural gas from shale formations. The methanol facility along with the company s other expansion projects are expected to bring in new capacity at considerably lower cost than building new facilities and contribute roughly $1.1 billion to the company s earnings before interest, taxes, depreciation, and amortization (EBITDA). LyondellBasell is planning to construct a world scale plant on the U.S. Gulf Coast for producing propylene oxide (PO) and tertiary butyl alcohol (TBA), leveraging the shale gas boom in the region. The plant, which is expected to go on stream in 2019, will have annual capacity of 900 million pounds of PO and 2 billion pounds of TBA and its derivatives. The U.S. Gulf Coast is an advantaged feedstock region due to the abundance of shale-derived NGLs. Equity Research LYB Page 2

3 LyondellBasell remains on track with its ethylene expansion programs. The multi-plant ethylene expansion program, which started last year, represents a total investment of roughly $1.3 billion in LyondellBasell s Channelview, La Porte and Corpus Christi facilities in Texas which benefit from shale gas production. Expansion at the Channelview facility is currently underway (expected to increase production by 250 million pounds annually) and is expected to come on stream in secondquarter The company has already completed an 800 million pound per year expansion at its La Porte site and expects the addition of 800 million pounds of capacity at the Corpus Christi plant to complete by second-quarter These expansion programs, when in full swing, are expected to expand annual ethylene capacity by an estimated 1.85 billion pounds for an aggregate projected capacity of 11.8 billion pounds in North America. The company will also commence further expansion at Channelview in 2017 which would add ethylene capacity of up to 550 million pounds a year. The additional expansion project at Channelview will further increase its annual ethylene capacity to billion (from 1.85 billion). The company s polypropylene compounding projects are also moving ahead according to plan. LyondellBasell remains committed to deliver greater value to its shareholders leveraging healthy cash flows. LyondellBasell bought back 19 million shares in second-quarter 2014 to complete its initial 10% repurchase authorization. The company has started repurchases under the second 10% authorization and bought back 63 million shares in Moreover, the company s supervisory board, in Apr 2014, approved a 17% rise in its interim dividend to $0.70 per share. LyondellBasell returned $7.2 billion to its shareholders in the form of dividends and share buybacks in REASONS TO SELL LyondellBasell faces volatility in raw material and energy costs that account for a major portion of its operating costs. The company has seen significant fluctuations in raw material and energy costs in the past. Inability to pass increases in raw material and energy costs to the customers may impact its results. The decline in crude oil prices could erode the feedstock cost advantage that is so far enjoyed by the company. Lower oil prices are expected to hurt its U.S. ethylene margins in 2015, thereby affecting its profitability. LyondellBasell s operations are subject to interruptions including maintenance outages which could materially affect its production capacity and results. Downtime at the La Porte facility due to turnaround maintenance and actions to complete ethylene capacity expansion at the site impacted ethylene production and ethylene derivative sales in third-quarter The company is executing a scheduled maintenance at its ChannelView methanol plant during first-quarter 2015, which is expected to affect results in the Intermediates and Derivatives segment by roughly $20 million. LyondellBasell is also exposed to macroeconomic uncertainties and volatility across end-use markets in serves. The company derives a major chunk of its sales and earnings from the European market which is not out of the woods. The slow recovery of the European market from the economic crisis may continue to affect the company s business in the region. Moreover, the company s businesses are affected by cyclicality and volatility (give the fluctuations in the demand and supply of products) of the chemical and refinery industries. The company also faces significant price pressure as it operates in highly competitive markets. Equity Research LYB Page 3

4 RECENT NEWS LyondellBasell Q4 Earnings Top, Inventory Charge Hits Net February 3, 2015 LyondellBasell saw lower profits in the fourth quarter of 2014, hit by a hefty inventory-related charge. It recorded earnings from continuing operations of $1.57 per share for the quarter, a nearly 26% fall from $2.11 per share registered a year ago. Barring a charge of $455 million (post-tax) associated with inventory adjustments, earnings from continuing operations were $2.48 per share for the reported quarter. That topped the Zacks Consensus Estimate of $2.13. Consolidated profit dropped around 33% year over year to $791 million or $1.54 per share in the quarter on lower sales. For 2014, adjusted earnings from continuing operations of $8.92 per share beat the Zacks Consensus Estimate of $8.48. LyondellBasell recorded revenues of $10,290 million in the reported quarter, down around 8% year over year. Sales were below the Zacks Consensus Estimate of $10,842 million. Consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) fell around 9% year over year to $1,406 million. Healthy gains in the company s olefins and polyolefins businesses were offset by declines in other divisions. For the full year, revenues rose 3.5% year over year to $45,608 million, but trailed the Zacks Consensus Estimate of $46,419 million. Segment Review Revenues from the Olefins & Polyolefins Americas division rose roughly 3% year over year to $3,379 million in the reported quarter. EBITDA jumped roughly 18% year over year to $1,040 million, benefiting from healthy olefin results. The results were driven by higher margins and increased volume from the added La Porte capacity. The company also saw higher polyethylene volumes. Sales from the Olefins & Polyolefins Europe, Asia, International segment went down 6% year over year to $3,361 million. EBITDA soared three-fold year over year to $348 million. Increased margins from reduced naphtha feedstock costs contributed to improved olefin results. The company saw higher ethylene production volumes on solid polymer demand. Increased volumes and margins also boosted polyolefin results. Intermediates and Derivatives segment sales fell around 9% to $2,304 million in the reported quarter. EBITDA also slipped 23% year over year to $271 million, affected by the inventory adjustment charge. Revenues from the Refining segment slipped 14% to $2,558 million. EBITDA was negative $311 million compared with earnings of $134 million recorded year ago. Renewable Identification Numbers (RINs) costs to meet U.S. renewable fuel standards rose around $15 million from the year-ago quarter. Technology segment sales slid around 23% year over year to $110 million. EBITDA fell 20% year over year to $44 million on reduced licensing revenues. Equity Research LYB Page 4

5 Financials LyondellBasell exited 2014 with cash and cash equivalents of roughly $1,031 million, down 77% year over year. Long-term debt rose 17% year over year to $6,757 million. LyondellBasell bought back 17.2 million shares in the reported quarter and around 63 million shares in The company spent $7.2 billion on dividends and shares repurchases last year. Capital spending was $1.5 billion in 2014 including $403 million in the reported quarter. Outlook Moving ahead, LyondellBasell said that it intends to advance roughly 1 billion pounds of ethylene expansion projects during 2015 and improve operations at its methanol facility. The company also expects that its refinery will start receiving additional volumes of Canadian crude oil this year. The company, however, expects reduced margins in 2015 compared with the last year due to lower crude oil prices. Nevertheless, the company remains confident in the fundamentals supporting its business. LyondellBasell's Q3 Earnings Top Estimates, Profit Jumps October 24, 2014 LyondellBasell recorded earnings from continuing operations of $2.46 per share for the third quarter of 2014, up roughly 63% from $1.51 per share logged a year ago. Barring charges of $45 million associated with inventory adjustments, earnings were $2.51 per share for the reported quarter. That outstripped the Zacks Consensus Estimate of $2.28. Consolidated profit surged around 48% year over year to $1,257 million or $2.45 per share in the quarter. The results were driven by healthy gains in the company s Olefins & Polyolefins Americas division. LyondellBasell recorded revenues of $12,066 million in the quarter, up around 8% year over year. Sales were well ahead of the Zacks Consensus Estimate of $11,712 million. Consolidated EBITDA climbed 33% year over year to a record $2,035 million. Segment Review Revenues from the Olefins & Polyolefins Americas division rose roughly 13% year over year to $3,750 million in the reported quarter. EBITDA shot up roughly 38% year over year to $1,157 million, benefiting from higher average ethylene prices and lower costs of NGLs. Results for both polyethylene and polypropylene improved in the quarter. Sales from the Olefins & Polyolefins - Europe, Asia, International segment went up 11% year over year to $3,995 million. EBITDA soared 68% year over year to $343 million. The division benefited from increased operating rates and higher margins from processing advantaged feedstocks that boosted olefins results. Intermediates and Derivatives segment sales moved up around 10% to $2,691 million in the reported quarter. EBITDA, however, slipped 10% year over year to $383 million. Revenues from the Refining segment edged down 1% to $3,146 million. EBITDA surged manifold year over year to $110 million, benefiting from higher yields and improved margins on secondary products. RINs costs to meet U.S. renewable fuel standards fell $10 million from the year-ago quarter. Equity Research LYB Page 5

6 Technology segment sales moved down around 14% year over year to $107 million. EBITDA fell 21% year over year to $41 million on reduced licensing results. Financials LyondellBasell exited the quarter with cash and cash equivalents of roughly $1,185 million, down 73% year over year. Long-term debt rose 17% year over year to roughly $6,753 million. LyondellBasell bought back 12 million shares in the reported quarter and around 46 million shares so far this year. The company has repurchased 73 million shares since its first buyback program started in May Outlook Moving ahead, LyondellBasell envisions results in the fourth quarter to be favorably impacted by new ethylene capacity at its La Porte facility in Texas. It also expects that its refinery will start receiving shipments of Canadian crude from the Flanagan South pipeline. The company is expected to gain from favorable pricing of NGLs and strong ethylene and polyolefins prices in the U.S. VALUATION Shares of LyondellBasell are currently trading at 11.2x our 2015 EPS estimate of $7.59. The company s current trailing 12-month earnings multiple is 9.5x, compared with 17.9x for the S&P 500 and 23.9x for the industry. Over the last five years, the company s shares have traded in the range of 4.4x to 15.3x trailing 12-month earnings. Our Neutral recommendation on the stock indicates that it will perform in line with the market. Our price target of $89 is based on 11.7x our 2015 earnings estimate. Key Indicators F1 F2 Est. 5-Yr EPS Gr% P/CF 5-Yr High 5-Yr Low LyondellBasell Industries NV (LYB) Industry Average S&P The Dow Chemical Company (DOW) BASF SE (BASFY) E. I. du Pont de Nemours and Company (DD) Mitsubishi Chemical Holdings Corporation (MTLHY) TTM is trailing 12 months; F1 is 2015 and F2 is 2016, CF is operating cash flow P/B Last Qtr. P/B 5-Yr High P/B 5-Yr Low ROE D/E Last Qtr. Div Yield Last Qtr. EV/EBITDA LyondellBasell Industries NV (LYB) Industry Average S&P Equity Research LYB Page 6

7 Earnings Surprise and Estimate Revision History Equity Research LYB Page 7

8 DISCLOSURES & DEFINITIONS The analysts contributing to this report do not hold any shares of LYB. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The current distribution of Zacks Ratings is as follows on the 1129 companies covered: Outperform %, Neutral %, Underperform 8.9%. Data is as of midnight on the business day immediately prior to this publication. Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5 th group has the highest values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the second, third, and fourth groups of stocks, respectively. Equity Research LYB Page 8