Chemicals Stocks

LyondellBasell Industries NV Valuation – March 2018 $LYB

Company Profile (obtained from Marketwatch): LyondellBasell Industries NV engages in the refinery and production of chemicals and plastics. It operates through the following segments: Olefins and Polyolefins-Americas, Olefins and Polyolefins-Europe, Asia, International, Intermediates and Derivatives, Refining, and Technology. The Olefins and Polyolefins-Americas segment produces and markets olefins which includes ethylene and ethylene co-products, and polyolefins. The Olefins and Polyolefins-Europe, Asia, International segment produces and markets olefins including ethylene and ethylene co-products, polyolefins and polypropylene compounds. The Intermediates and Derivatives segment produces and markets propylene oxide and its co-products and derivatives, acetyls, and oxygenated fuels. The Refining segment produces gasoline and diesel fuel. The Technology segment develops and chemical and polyolefin process technologies and manufactures and sells polyolefin catalysts. The company was founded in December 2007 and is headquartered in London, the United Kingdom.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of LYB – March 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $42,688,497,611 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.46 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -100.42% Fail
6. Moderate PEmg Ratio PEmg < 20 11.10 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.79 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.46 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.23 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $9.75
MG Growth Estimate 8.86%
MG Value $255.65
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $141.40
MG Value based on 0% Growth $82.89
Market Implied Growth Rate 1.30%
Current Price $108.22
% of Intrinsic Value 42.33%

LyondellBasell Industries NV is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PB ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $6.13 in 2014 to an estimated $9.75 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.3% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into LyondellBasell Industries NV revealed the company was trading above its Graham Number of $66.06. The company pays a dividend of $3.55 per share, for a yield of 3.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 11.1, which was below the industry average of 30.04, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-13.94.

LyondellBasell Industries NV performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$13.94
Graham Number $66.06
PEmg 11.10
Current Ratio 2.46
PB Ratio 4.79
Current Dividend $3.55
Dividend Yield 3.28%
Number of Consecutive Years of Dividend Growth 7

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $11,738,000,000
Total Current Liabilities $4,777,000,000
Long-Term Debt $8,549,000,000
Total Assets $26,206,000,000
Intangible Assets $1,138,000,000
Total Liabilities $17,257,000,000
Shares Outstanding (Diluted Average) 396,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.56
Dec2017 $12.23
Dec2016 $9.13
Dec2015 $9.59
Dec2014 $7.99
Dec2013 $6.75
Dec2012 $4.92
Dec2011 $3.74
Dec2010 $2.78
Dec2009 -$7,105.20

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $9.75
Dec2017 $9.94
Dec2016 $8.43
Dec2015 $7.58
Dec2014 $6.13
Dec2013 -$469.00
Dec2012 -$944.17
Dec2011 -$1,419.05
Dec2010 -$1,893.79
Dec2009 -$2,368.40

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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