Fall2015
SIMSTOCK PRESENTATION
MATERIALS SECTOR
ChangChang,ZevMintzandCodyMizerik
Agenda
• SectorOverview
• StockRecommendations
• LYB
• ECL
• CCK
• FinalRecommendations
• Q/A
SECTOROVERVIEW
S&PWEIGHTS
Materials, 2.87%
SIMWEIGHTS
Utilities,3.10%
Telecommunication
Services,2.37%
Telecommunication
Services
2.33% Utilities
2.30%
Consumer
Discretionary,13.16%
​Other,3.49%
Materials
2.77%
Consumer
Discretionary
12.88%
ConsumerStaples,
9.90%
Information
Technology,20.37%
Energy, 7.09%
Information Technology
20.61%
ConsumerStaples
10.01%
Energy
6.51%
Industrials, 9.99%
Financials, 16.28%
Industrials
9.83%
HealthCare,14.87%
HealthCare
13.28%
BasicMaterialsMarketCap:$540.87Billion
Financials
15.99%
SectorBreakdown
Sector
Basic
Materials
Industry
Sub-Industry
Chemicals
CommodityChemicals
DiversifiedChemicals
FertilizersandAgriculturalChemicals
IndustrialGases
SpecialtyChemicals
ConstructionMaterials
ContainersandPackaging
MetalsandMining
PaperandForestProducts
ConstructionMaterials
MetalandGlassContainers
PaperPackaging
Aluminum
DiversifiedMetalsandMining
Gold
PreciousMetalsandMinerals
Silver
Steel
ForestProducts
PaperProducts
Recommendations
StockName
Ticker
Current
Basis
Proposed Current
Basis
Price
Target
Price
Upside
Recommend
LyondellBasell LYB
1.69
1.69
$94.50
$105.12
9.2%
HOLD
Ecolab Inc
ECL
1.22
0
$118.98
$105.62
9.8%
SELL
Crowns
Holding
CCK
0
1.50
$50.83
$58.94
16.0%
BUY
ContinuetoSlightlyUnderweightascomparedtoS&P500
LyondellBasell(LYB)
QuickFacts:
• BasedinRotterdam,Netherlands
• Emergedfrom bankruptcyin2010
• Globaloperations in18countries
• 3rd largestchemicalcompanybyrevenueinworld
• Doesplastics,chemicalsandrefining
Recommendation
CurrentSIM%
1.69%
CurrentStockPrice $96.26
SegmentsofCompany:
•
•
•
•
•
OlefinsandPolyolefins Americas
OlefinsandPolyolefins – Europe, International
IntermediatesandDerivatives
Refining
Technology
PotentialUpside
(%)
9.2%
HOLD
StockOverview:
Five-YearStockPerformance
StockDetails
MarketCap
43.23Billion
Shares
Outstanding
449.44M
DividendYield
3.12(3.28%)
52WeekHigh
$107.32
52WeekLow
$70.06
ProfitMargin
12.44%
EPS
9.32
RisksandOpportunities
Risks:
Opportunities:
• Emerging MarketsSlowDown
• Technology LicensingGrowth
• Foreign ExchangeRates
• IndiaExpansion Production
• Refinery/PlantBreakdowns
• South AmericanExpansion
Production
• Gas/OilPriceRatios
• EthyleneCapacityIncrease(2017)
Absolute Basis
High
Low
P/E
16.91
2.6424
10.8242
10.262
P/B
6.8693
1.0568
2.8704
5.0849
P/S
1.4342
.1609
.7877
1.0878
P/EBITDA
9.6544
.24952
6.055
5.4875
$InMillions
MarketCap
Median
P/S
Current
P/B
P/E
Dividend Yield
LyondellBasellIndustries NV
Ecolab Inc (USD)
PraxairInc (USD)
$43,494
$35,228
$31,262
1.2
2.6
2.7
5.5
5.2
6.3
10.7
29.4
21.3
3.2
1.1
2.6
PPGIndustries Inc (USD)
$27,391
1.8
5.3
25
1.4
Sherwin-WilliamsCo(USD)
$22,638
2.1
29.9
24.7
1
Terminal Discount Rate =
Terminal FCF Grow th =
Year
2015
Revenue
34,438
% Grow th
2016
35,957
4.4%
Operating Income
6,140
5,663
2017
37,280
3.7%
5,834
2018
38,771
4.0%
5,699
2019
40,361
4.1%
5,933
11.5%
4.0%
2020
42,056
4.2%
6,182
2021
43,864
4.3%
6,448
2022
45,794
4.4%
6,732
2023
47,855
2024
50,008
4.5%
7,035
4.5%
7,351
2025
52,259
4.5%
7,682
Operating Margin
17.8%
15.8%
15.7%
14.7%
14.7%
14.7%
14.7%
14.7%
14.7%
14.7%
14.7%
Interest Income
(227)
(237)
(246)
(271)
(283)
(294)
(307)
(321)
(335)
(350)
(366)
Interest % of Sales
-0.7%
-0.7%
-0.7%
-0.7%
-0.7%
-0.7%
-0.7%
-0.7%
-0.7%
-0.7%
-0.7%
186
234
227
194
202
210
219
229
239
250
261
0.5%
0.7%
0.6%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
Othe r Incom e
Taxes
1,648
Tax Rate
27.0%
Net Income
4,451
% Grow th
% of Sales
Plus/(minus) Changes WC
% of Sales
4,131
4.2%
4.3%
4.4%
5,293
4.5%
4.5%
2.6%
2.6%
2.6%
2.6%
2.6%
(219)
(229)
(239)
(250)
(261)
3.2%
4,108
10.1
11.0
7.2
7.7
467
96.26
104.91
9.0%
8,310
3,332
7.13
3.2%
3,763
-8.4%
50%
50%
100%
3.0%
3,716
-1.2%
-0.5%
2.9%
3,909
5.2%
-0.5%
1,178
2.8%
4,115
5.3%
-0.5%
1,228
2.8%
4,336
5.4%
-0.5%
1,236
2.7%
4,573
5.5%
1,300
5,532
2.5%
1,170
1,244
4.5%
(210)
-0.5%
1,191
5,065
2.5%
1,163
1,140
4,847
27.0%
(202)
-0.5%
1,051
4,643
27.0%
2.5%
1,193
1,009
4,452
27.0%
0.5%
2,046
(194)
24,387
24,607
48,994
10.84%
$
$
4.1%
1,958
2.4%
0.7%
969
4,272
27.0%
1,874
(184)
-15.7%
Shares Outstanding
-3.3%
27.0%
1,793
264
1,151
895
4,104
27.0%
1,717
2.4%
4,873
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
2.8%
27.0%
1,646
863
% Grow th
NPV of Cash Flow s
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
4,245
27.0%
1,580
697
3.2%
Free Cash Flow
27.0%
1,518
2.4%
1,102
Capex % of sales
1,570
827
2.0%
Subtract Cap Ex
Debt
Cash
Cash/share
27.0%
-7.2%
Add Depreciation/Amort
Current Price
Implied equity value/share
Upside/(Dow nside) to DCF
1,528
-0.5%
1,244
-0.5%
1,300
2.6%
4,826
2.6%
5,043
5.5%
4.5%
Terminal Value
Free Cash Yield
10.9
11.9
7.7
8.3
10.6
11.5
7.4
8.0
1,359
-0.5%
1,359
2.6%
5,270
4.5%
73,082
7.21%
Terminal P/E
13.2
Terminal EV/EBITDA
8.6
ValuationMethod
PriceTarget
Weight
DCFModel
$104.91
60%
P/E
$112.02
10%
P/B
$91.23
10%
P/S
$105.68
10%
$112.8
10%
P/EBITDA
RECOMMENDATION:
HOLD
ProjectedSIMPrice
CurrentPrice
Upside
$105.12
$96.26
9.20%
EEcolab (ECL)
• Globalproviderofwater,hygiene,and
energysolutions
• On-siteserviceforclientsinfood,
healthcare,energy,hospitalityand
industrialmarketsinover170countries
• Nearlyhalfofthetotalrevenueswas
generatedoutsidetheU.S
Recommendation
CurrentPrice
$119.23
TargetPrice
$104.41
CurrentSIM
1.28%
Segments
•
•
•
•
GlobalIndustrial:TextileCare,Water,Paper, Food
GlobalInstitutional: Healthcare,Institutional, Specialty
GlobalEnergy
Other:Equipment Care,PestElimination
SELL
StockPerformance
StockDetails
MarketCap
$34.6 B
Shares
Outstanding
295.3M
52WK High
$122.48
52WK low
$97.78
DividendYield
1.13%
RisksandOpportunities
Opportunities
Risks
• Increasingawarenessfor
environmentalsustainability
• Urbanization
• Scarcityofresources
• Increasedexposuretovolatile
rawmaterialcosts
• Foreign currencyexchangerisk
RecentFinancialPerformance
• Salessloweddowninthird quarter
• Increasedcyclicality
• Energysegmentwasnegativelyimpactedby
lowoilprices
• IncreasedspecialchargesduetoVenezuela
devaluation
Third Quarter Ended
Nine Months Ended
September 30
September 30
2015
NetSales
COG
Special
charges
Operaing
Incomes
NetIncome
$3,446.4
1820.00
$142.7
413.00
$257.8
2014
$3,694.9
% Change
2014
% Change
-7% $ 10,133.1
$ 10,599.7
-4%
5,391.8
5,699.2
216.1
30.5
1238.5
793.2
1434.5
867.3
1970.60
$7.0
571.40
$364.9
-28%
-29%
2015
-14%
-9%
ECOLAB (ECL)
Analyst: Chang Chang
21/09/2015
(MILLIONS)
Year
Terminal Discount Rate =
Terminal FCF Growth =
2015E
Revenue
14,067
% Grow th
2016E
14,596
3.8%
Operating Income
2,015
2,197
2017E
15,318
4.9%
2,327
2018E
17,309
13.0%
2,769
2019E
19,386
12.0%
3,102
10.5%
4.5%
2020E
21,325
10.0%
3,412
2021E
23,457
10.0%
3,753
2022E
24,630
5.0%
3,941
2023E
25,369
2024E
26,130
3.0%
4,059
3.0%
4,181
2025E
26,914
3.0%
4,306
Operating Margin
14.3%
15.1%
15.7%
16.0%
16.0%
16.0%
16.0%
16.0%
16.0%
16.0%
16.0%
Interest Income
253
263
276
312
349
384
422
443
457
470
484
Interest % of Sales
1.8%
1.8%
1.8%
1.8%
1.8%
1.8%
1.8%
1.8%
1.8%
1.8%
1.8%
Taxes
Tax Rate
Net Income
458
503
533
639
716
787
866
909
937
965
994
26.0%
26.0%
26.0%
26.0%
26.0%
26.0%
26.0%
26.0%
26.0%
26.0%
26.0%
1,303
% Grow th
1,431
1,518
1,819
2,037
2,241
2,588
6.0%
19.9%
12.0%
900
910
920
865
969
5.0%
5.0%
5.0%
5.0%
5.0%
118
(252)
0.8%
-1.7%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Subtract Cap Ex
750
700
730
865
775
853
938
985
Capex % of sales
5.0%
5.0%
5.0%
5.0%
4.0%
4.0%
4.0%
4.0%
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Free Cash Flow
1,571
% Grow th
-11.6%
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
13,002
18,167
31,169
4.47%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
27.0
23.9
12.6
11.2
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Downside) to DCF
1,390
2
1,709
23.0%
2
1,821
6.5%
42%
58%
100%
2,233
22.6%
1,066
5.0%
2
2,456
10.0%
10.0%
5.0%
938
985
4.0%
4.0%
3
2,467
0.5%
3
2,591
5.0%
2,666
2,746
3.0%
1,015
3.0%
1,045
4.0%
3
4.0%
3
0.0%
1,015
0.0%
1,045
4.0%
2,669
4.0%
2,749
3.0%
3.0%
Terminal Value
Free Cash Yield
24.6
21.8
11.8
10.5
23.2
20.5
11.3
10.1
295
$
$
2
10.0%
2,465
9.8%
119.23 premarket after preannouncement
105.62
-11.4%
2,828
3.0%
1,077
4.0%
3
0.0%
1,077
4.0%
2,831
3.0%
49,307
5.74%
Terminal P/E
17.4
Terminal EV/EBITDA
9.4
SensitivityAnalysis
Terminal Growth Rate
Sensitivity Analysis
$
105.62
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
Terminal Growth Rate
Sensitivity Analysis
-11.4%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
$
$
$
$
$
$
$
9.5%
102.93
107.59
113.02
119.44
127.15
136.57
148.34
9.5%
-13.7%
-9.8%
-5.2%
0.2%
6.6%
14.5%
24.4%
$
$
$
$
$
$
$
10.0%
95.68
99.56
104.03
109.24
115.41
122.80
131.85
Terminal Discount Rate
10.5%
11.0%
$
89.35 $
83.76 $
$
92.60 $
86.52 $
$
96.32 $
89.65 $
$ 100.61 $
93.22 $
$ 105.62 $
97.34 $
$ 111.54 $ 102.15 $
$ 118.64 $ 107.83 $
11.5%
78.81
81.16
83.81
86.81
90.24
94.20
98.82
10.0%
-19.8%
-16.5%
-12.8%
-8.4%
-3.2%
3.0%
10.6%
Terminal Discount Rate
10.5%
11.0%
-25.1%
-29.7%
-22.3%
-27.4%
-19.2%
-24.8%
-15.6%
-21.8%
-11.4%
-18.4%
-6.5%
-14.3%
-0.5%
-9.6%
11.5%
-33.9%
-31.9%
-29.7%
-27.2%
-24.3%
-21.0%
-17.1%
$
$
$
$
$
$
$
12.0%
74.38
76.40
78.66
81.21
84.09
87.39
91.19
12.0%
-37.6%
-35.9%
-34.0%
-31.9%
-29.5%
-26.7%
-23.5%
Recommendation:
SELL
Valuation Method
PriceTarget
Weight
DCF
$105.62
0.7
P/E
$110.00
0.1
P/B
$91.76
0.1
P/S
$102.96
0.1
Current
Price
$119.23
TargetPrice
$104.41
Downside
Potential
-11.4%
CrownHoldings(CCK)
• Worldleadingdesigner,
manufacturerandsupplierof
beverage,foodandaerosol
packaging
• Alsoproducemetalclosuresand
specialtypackaging
Segments
•
•
•
Americas
Europe
Asia
Recommendation
CurrentSIM%
0%
Recommend SIM%
1.5
CurrentStockPrice
$50.83
Consensus Target
$58.30
PotentialUpside(%)
16%
BUY
StockPerformance
StockDetails
Market
Cap
$7.37 B
Shares
Outstandi
ng
138.5M
52WK
High
$57.08
52WK low
$43.85
Dividend
Yield
N/A
RisksandOpportunities
Opportunities
Risks
• Improvingglobaleconomic
conditions
• Acquisitionsandplant
improvementsleadingto
increasedproductionpotential
• Favorableweatherconditions
• Increasinginterestrates
affectingdebtswithfloating
interestrates
• StrengtheningU.S.dollar
• Rawmaterialandenergy
priceincreases
P/E
CrownHoldings
BallCorporation
SilganHoldings
Industry
S&P500
P/B
15.51
19.42
17.87
16.97
18.57
P/S
50.61
9.06
5.09
3.23
2.8
P/EBITDA
0.79
6.59
1.15
10.53
0.85
6.97
1.43
9.81
1.84
10.45
Recommendation:
BUY
Bloomberg
Yahoofinance
Current
Price
$50.83
TargetPrice
$58.94
Downside
Potential
16%
Recommendations
StockName
Ticker Current
Basis
Proposed
Basis
Current
Price
Target
Price
Upside
Recommend
LyondellBasell
LYB
1.69
1.69
$94.50
$105.12
9.2%
HOLD
Ecolab Inc
ECL
1.22
0
$118.98
$105.62
9.8%
SELL
CrownsHolding
CCK
0
1.50
$50.83
$58.94
16.0%
BUY
Whatquestionsdo
youhave?