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LyondellBasell Industries NV
Tuesday's close: $61.18 (U.S.) a share, up 78 cents
52-week trading range: $33.94 - $64.20 a share
Annual dividend: $1.60 a share for a yield of 2.6 per cent
Analysts' ratings: There were 16 buys, five holds and no sells, according to Bloomberg data. Target prices ranged from $52 a share from Andrew Cash of SunTrust Robinson Humphrey to $80 a share from Hassan Ahmed of Alembic Global Advisors.
Recent history: Shares of the Netherlands-based chemical company have gained 52 per cent, including dividends, over the past year. LyondellBasell is the maker of polypropylene and polypropylene compounds used in everything from food packaging to textiles and automotive parts. The company has seen margins improve due to falling North American natural gas prices. It now gets cheap feedstock from ethane, a byproduct of gas. Apollo Global Management LLC, the company's largest investor since LyondellBasell emerged from bankruptcy in 2010, sold 25 million of its shares last week at a slight discount to the market price, and now owns about a 15-per-cent stake in the company.
Manager insight: LyondellBasell has a dividend yield of 2.6 per cent that does not reflect special payouts that investors have received over the past two years. Shareholders received a special dividend of $4.50 a share in the fourth quarter of 2011, and $2.75 a share in the same month last year. "The dividend yield on a run-rate basis in 2012 accounted for about 7 per cent," and that is expected to be repeated again this year, said Andy Nasr, a portfolio manager with Middlefield Capital Corp. "It is our expectation that you are going to see another sizable dividend in the fourth quarter of 2013… If there is excess free cash flow, it will be returned to shareholders."
The stock is currently cheap, and could reach $80 a share within the next 12 months, Mr. Nasr suggested. "It is trading at a significant discount to recent merger-and-acquisition multiples. There were several chemical companies that were acquired in 2012 at an average of about nine- or 10-times EBITDA [earnings before interest, taxes, depreciation and amortization]. This is a company trading at six times EBITDA with a relatively healthy balance sheet and generates good free cash flow."
While any pickup in global growth will push up chemical prices, the company also has several "bolt-on" plant expansions to be completed in 2014 and projects in the pipeline from 2014-2016 that could boost operating profit, he added. "This is a company where EBITDA is running at about $1.6-billion, and it is not a stretch that they could do $2.5-billion within two years. That is really what is going to drive the move from $60 to $80 or $90 a share...You are increasing your profit by about 50 per cent, which is pretty substantial."
LyondellBasell could also unlock shareholder value by divesting some of its assets into a publicly listed Master Limited Partnership that would trade a much higher earnings multiple potentially, Mr. Nasr said. "So there is break-up potential here. If they decide to do that, then they could potentially get a much higher share price."