Materials
SIM Sector Presentation
3/18/2014
Arielle Patterson, Molly Silvernail, Matt Stanisa, Martin Smith
Road Map
•
•
•
•
•
•
Sector Overview
Economics of the Materials Sector
Business Summary
Financials
Valuation
Recommendation of
Overweight/Underweight
Sub-Industries of the Materials
Sector
Industry
3/17/2014
#
5-day 1-month 1-year of Companies Market Cap.
Mining & Metals - Specialty
1.27% –3.76% –6.01% –6.26%
Chemicals - Diversified
1.03% –1.49%
Chemicals - Commodity
0.69% –2.68%
193
115.6B
5.13% 41.24%
6
45.5B
3.69% 37.28%
66
42.6B
Steel
0.75% –2.83% –9.83% –8.99%
65
30.1B
Chemicals - Agricultural
0.63% –3.16%
3.70%
–
12.60%
32
21.4B
Construction Materials
1.39% –4.63%
0.63% 18.31%
33
16.0B
Chemicals - Specialty
1.26% –1.28%
3.76% 20.70%
41
15.3B
Paper Packaging
0.00% –4.67% –3.68% 21.20%
8
12.2B
Precious Metals & Minerals
–1.91% 5.20%
–
17.53%
195
11.8B
Forest & Wood Products
–0.78% –1.75% –2.52% –8.50%
27
10.3B
3.70%
Source: NY Times
10 Largest Companies in S&P
Materials Sector
Company Name
Ticker MarketCap 5-Day YTD
1-Month 3-Month 1-Year 3-Year 5-Year
E.I. du Pont de Nemours & Company
DD
61,016
-2.2
1.92
1.97
9.93
35.4
10.2
30.7
Monsanto Company
MON
59,421
-0.8
-2.5
3.4
2.69
10.3
20.5
8.6
Dow Chemical Co
DOW
59,150
-1.7
9.57
4.15
17.94
48.3
12.4
47.8
LyondellBasell Industries NV
LYB
48,599
-2.2
11.51
5.98
17.5
40.7
37
Praxair, Inc.
PX
38,731
0.52
1.82
2
6.56
18.1
12.2
17.3
Ecolab, Inc.
ECL
32,672
-1.1
4.45
5.58
6.17
37.1
31.6
28.4
Freeport-McMoRan Copper & Gold
FCX
32,253
-3.5
-16.9
-7.97
-8.64
0.45
-9.67
15.3
PPG Industries, Inc.
PPG
26,952
-2.7
2.92
3.33
6.71
38.5
31.9
44.2
Air Products & Chemicals Inc
APD
25,352
-1.6
7.15
2.04
11.85
36.4
13.6
20
International Paper Company
IP
20,240
-1.4
2.85
2.41
8.41
30.7
16.1
26.5
Materials Sector Facts
Fundamentals
P/E (trailing)
P/E (projected)
P/B
Dividend Yield
P/S
P/Cash Flow
24.19
15.35
2.75
2.27%
1.31
23.98
Number of Companies
Largest Market Cap
Smallest Market Cap
Average Market Cap
31
61,696.98
3,067.07
19.625.24
Total Market Cap
608,382.38
(in millions)
Source: S&P Materials Sector fact sheet
S&P Weight
3.52
%
3.04%
2.21%
18.90
%
12.36
%
SIM Weight
Consumer
Discretionary
Consumer
Staples
Energy
3.04%
9.46%
3.41%
13.65%
1.14%
9.73%
20.20%
15.95
%
10.74
%
13.74
%
14.26% 15.24%
10.08
%
8.87%
Financials
Health Care
8.56%
Industrials
Information
Technology
Materials
Telecommunica
tion Services
Utilities
Materials Stocks in the SIM
Portfolio
Company
Ticker
Freeport-McMoran Copper
& Gold
FCX
The Mosaic Company
MOS
Shares
Unit Cost
6000 $ 34.05
3500 $ 53.45
Market Value
Unrealized Gain/(Loss)
$
$
31.06 (17,940.00)
$
$
47.90 (19,425.00)
Materials vs USD/EUR – 1 Year
(r = .876)
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
-5.00%
-10.00%
S&P 500 Materials (Industry Group) Index - Index Value
US Dollar per Euro ($USDEUR) - Rate Value
Materials vs Oil – 5 year (r = .856)
200.00%
150.00%
100.00%
50.00%
0.00%
-50.00%
S&P 500 Materials (Industry Group) Index - Index Value
Crude Oil (NYMEX:^CL) - Day Close Price
Materials vs S&P 500 – 5 Year (r
= .947)
200.00%
150.00%
100.00%
50.00%
0.00%
-50.00%
S&P 500 Materials (Industry Group) Index - Index Value
S&P 500 Index (^SPX) - Index Value
Materials vs Commodities Index –
5 Year (r = .806)
200.00%
150.00%
100.00%
50.00%
0.00%
-50.00%
S&P 500 Materials (Industry Group) Index - Index Value
S&P GSCI Index (^SPGSCI) - Index Value
Materials vs Gold – 5 Year (r = .485)
200.00%
150.00%
100.00%
50.00%
0.00%
-50.00%
S&P 500 Materials (Industry Group) Index - Index Value
Gold (COMEX:^GC) - Day Close Price
Materials vs GDP Index – 1 Year (r =
.965)
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
-5.00%
-10.00%
S&P 500 Materials (Industry Group) Index - Index Value
MSCI World Ex USA Gdp Index - Index Value
BUSINESS ANALYSIS
Life Cycle
• Materials Sector is in the mature phase of
the life cycle
– Low profit margins Profit pressure
– Low growth Follows growth rate of the
economy
– High price sensitivity Competition amongst
companies based on prices
– Established sector Low risk
• The materials sector is sensitive to
economic cycles
– Follows the S&P 500 during times of
recession and expansion
Porter’s Five Forces
Threat of Entry
Low
•
•
•
High capital requirements
High government regulations and laws
Limited geographical accessibility
Bargaining
Power of
Suppliers
Low
•
•
Many companies provide their own raw materials
Limited finite control over natural resources
Bargaining
Power of Buyers
High
•
•
Low switching costs
Low product differentiation
Threat of
Substitutes
Low
•
•
Few alternatives to basic materials such as metals
The basic materials sector are from raw materials
which are hard to replicate
Rivalry
High
•
•
Hard to gain a competitive advantage
Many companies competing with same
undifferentiated products
Financial Analysis
Margin Analysis
Key Stats & Ratios
Trading Multiples
As of March-10-2014
CY2010
CY2011
CY2012
CY2013
Gross Margin %
25.8%
26.9%
26.7%
27.1%
SG&A Margin %
9.0%
8.4%
9.3%
9.8%
EBITDA Margin %
17.9%
18.3%
17.2%
17.4%
EBITA Margin %
12.6%
13.7%
12.4%
12.0%
EBIT Margin %
12.6%
13.7%
12.4%
12.0%
Earnings from Cont.
Ops Margin %
10.0%
8.1%
6.2%
6.1%
9.4%
7.5%
6.1%
7.0%
Margin Analysis
Net Income Margin %
Operating Margin vs. S&P 500
Net Profit Margin (T12M) vs. S&P
500
Sector Cash Flows From
Operations Per Share
Return on Common Equity vs. S&P
500
ROE vs. ROA
DuPont Analysis
As of March-10-2014
CY2010
CY2011
CY2012
CY2013
Return on Equity %
22.10%
17.70%
12.70%
11.90%
Return on Assets %
6.40%
7.40%
6.30%
6.00%
3.45
2.39
2.02
1.98
Equity Multiplier
Absolute Valuation
Measure
Current
10 Y High
10 Y Low
10 Y Average 10 Y Median
Trailing P/E
18.33
30.47
8.56
16.84
16.31
P/B
2.80
3.23
1.52
2.65
2.70
P/FCF
26.73
29.62
12.85
21.28
21.39
P/S
1.44
1.50
0.58
1.18
1.20
2014-12-31 Fwd P/E
17.51
2015-12-31 Fwd P/E
14.98
Relative Valuation
Measure
Current
10 Y High
10 Y Low
10 Y Average 10 Y Median
Trailing P/E
1.07
1.35
0.76
1.04
0.99
P/B
1.67
1.06
0.93
1.09
1.12
P/FCF
1.87
0.26
1.45
1.05
1.38
P/S
0.86
0.88
0.78
0.85
0.84
2014-12-31 Fwd P/E
1.10
2015-12-31 Fwd P/E
1.05
Current Industry Comparisons
Industry
Agricultural
Chemicals
Aluminum
Chemicals Major Diversified
Copper
Absolute P/E
Absolute P/B
Relative P/E
Relative P/B
16.3
4.7
1.0
2.8
0.0
1.4
0.0
0.9
19.0
8.4
1.1
5.0
15.4
2.8
0.9
1.7
Gold
Industrial Metals
& Minerals
Nonmetallic
Mineral Mining
Silver
Specialty
Chemicals
Steel & Iron
0.0
1.0
0.0
0.6
46.9
2.4
2.7
1.4
8.0
2.8
0.5
1.6
89.7
1.2
5.2
0.7
14.7
7.1
0.9
4.2
0.0
1.2
0.0
0.7
56.0
3.3
3.3
1.9
Synthetics
Recommendation
• Remain at slightly less than S&P 500
weighting (0.048%)
• Largest positive
-Uncertainty of growth in China/EM
• Largest negative
-US shale boom will continue to drive natural gas
prices even lower
• Overweight chemicals industry
-Low natural gas prices will drive growth, offset
largest negative