materials sector analysis
DESCRIPTION
Materials Sector Analysis. Kyle Shaner Josh Carter. Agenda. Sector Analysis Business Analysis Economic Conditions Financial Analysis Valuation Recommendation. Sector Analysis – Materials Sector. Companies that are involved in the discovery, development and processing of raw materials - PowerPoint PPT PresentationTRANSCRIPT
Fisher College of Business – Student Investment Management
Materials Sector Analysis
Kyle ShanerJosh Carter
Fisher College of Business – Student Investment Management
Agenda
• Sector Analysis• Business Analysis• Economic Conditions• Financial Analysis• Valuation• Recommendation
Fisher College of Business – Student Investment Management
Sector Analysis – Materials Sector
• Companies that are involved in the discovery, development and processing of raw materials
• Includes companies that are involved with mining and refining metals, chemical production and oil and gas infrastructure development
Fisher College of Business – Student Investment Management
Sector Analysis – Industries
• Chemicals– Producers of commodity, diversified, fertilizers,
agricultural, and specialty chemicals– Producers of industrial gases
• Construction Materials– Manufacturers of construction materials including
sand, clay, gypsum, lime, aggregates, cement, concrete and bricks
• Containers and Packaging– Manufacturers of metal, glass, plastic, paper and
cardboard containers
Fisher College of Business – Student Investment Management
Sector Analysis - Industries
• Metals and Mining– Producers of aluminum and related products– Companies engaged in diversified metals and mining
production or extraction of gold, precious metals, minerals and related products
– Producers of iron, steel and related products• Paper & Forest Products
– Manufacturers of timber, related wood products and all grades of paper.
– Manufacturers of lumber for the building industry but excludes companies specializing in paper packaging
Fisher College of Business – Student Investment Management
Sector Analysis-Industry Performance
Fisher College of Business – Student Investment Management
Sector Analysis-Industry Performance
Fisher College of Business – Student Investment Management
Sector Analysis-Industry Performance
Fisher College of Business – Student Investment Management
Sector Analysis - Major Companies
Symbol Company Price (1) Market Cap (Billions)(1)
MON Monsanto Co. $79.41 $43.46
PX Praxair Inc. $67.46 $20.75
DD Du Pont (E.I.) $22.40 $20.21
NEM Newmont Mining Corp. (Hldg. Co.)
$41.58 $18.89
NUE Nucor Corp. $43.83 $13.77
(1) Price and market cap as of 2/13/2008
Fisher College of Business – Student Investment Management
Sector Analysis - SIM Weights
Current SIM Weight = 1.79%Current S&P Weight = 3.04%Underweight by 1.25%
Fisher College of Business – Student Investment Management
Sector Analysis - Current Holdings
• Posco ADR (PKX)– Manufactures and sells various steel products
primarily in Korea
Unit Cost
Total Cost
Market Price (1)
Market Value(1)
Unrealized Gain/(Loss)
Loss
117.06 $468,225.60 66.16 $254,080.00 ($214,146) -45.74%
(1) Price and market cap as of 2/13/2008
Fisher College of Business – Student Investment Management
Business Analysis
• Mature Sector• Cyclical• Growth through acquisition• International Exposure• Increased Environmental Regulation
Fisher College of Business – Student Investment Management
Business Analysis – M&A Activity• Trend towards industry consolidation• Notable transactions
– Failed BHP acquisition of Rio Tinto-$120 billion– Chinalco minority investment in Rio - $20 billion– Proposed DOW acquisition of Rohm & Haas - $15 billion
• M&A activity trends• In 2007, M&A volume reached all time high of $4.7 trillion
• Led by unprecedented financial sponsor activity - $870 billion• Materials represented ~$650 billion in announced deals
• Q4 2008 M&A volume decreased dramatically – down 73%
Data provided by Thompson Reuters
Fisher College of Business – Student Investment Management
Business Analysis – M&A Activity
Data provided by Thompson Reuters
Fisher College of Business – Student Investment Management
Economic Analysis – Global Demand
` GDP Y-o-Y Growth
2008 2009
Brazil 4.80% 4.00%
Russia 6.80% 5.70%
India 7.90% 7.10%
China 9.30% 6.70%
• Euro zone GDP fell 5.6% annualized in Q4 2008
• Japan fell 12.7% annualized
Fisher College of Business – Student Investment Management
Economic Analysis - Performance
2007 2008 2009
S&P 500 3.53% -38.49% -8.57%
Materials 19.98% -47.05% -7.24%
Fisher College of Business – Student Investment Management
Economic Analysis – Metal Prices
Fisher College of Business – Student Investment Management
Economic Analysis – Metal Prices
Fisher College of Business – Student Investment Management
Economic Analysis - Regression Analysis
SUMMARY OUTPUT
Regression StatisticsMultiple R 0.893326709R Square 0.79803261Adjusted R Square 0.796865168Standard Error 4.153939056Observations 523
ANOVAdf SS MS F Significance F
Regression 3 35385.63421 11795.2114 683.5739247 8.5479E-180Residual 519 8955.453826 17.25520968Total 522 44341.08804
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%Intercept 17.79974462 1.606531723 11.0796098 9.3967E-26 14.64364036 20.95584888 14.64364036 20.95584888Copper 0.033807623 0.007130803 4.741068366 2.75008E-06 0.019798839 0.047816408 0.019798839 0.047816408Aluminum 0.131516501 0.029357422 4.4798382 9.19506E-06 0.073842517 0.189190485 0.073842517 0.189190485Scrap Steel 0.001846461 0.000423506 4.359943524 1.56937E-05 0.001014465 0.002678458 0.001014465 0.002678458
Fisher College of Business – Student Investment Management
Economic Analysis - Stimulus Package• US passes $789 billion Economic Stimulus Package
• ~65% spending and ~35% tax cuts• Obama administration has focus on infrastructure spending to spark
economy• ~$62 billion in highway construction – spending may have 19
month lag time
• In November, China announced $586 billion stimulus package• China faces growth issues as global trade declines
• Exports down 17% in January 2009• Package focuses on upgrading infrastructure, particularly railways,
roads, and aiports
Fisher College of Business – Student Investment Management
Financial Analysis - Financials
Fisher College of Business – Student Investment Management
Financial Analysis - Financials
Fisher College of Business – Student Investment Management
Financial Analysis Continued…
Fisher College of Business – Student Investment Management
Financial Analysis Continued…
Fisher College of Business – Student Investment Management
Financial Analysis Continued…
Fisher College of Business – Student Investment Management
Financial Analysis Continued…
Fisher College of Business – Student Investment Management
Financial Analysis-Relative Valuation
High Low Mean CurrentP/Forward E 1.43 0.59 0.94 1.34P/S 1.14 0.36 0.78 0.85P/B 1.16 0.36 0.89 1.11P/EBITDA 1.18 0.46 0.85 0.80P/CF 1.08 0.39 0.82 0.82P/E/G ratio 1.57 0.64 1.14 1.24ROE ratio 1.15 0.57 0.80 1.05
Fisher College of Business – Student Investment Management
Recommendation
• Sector will struggle until economy rebounds• Continue to underweight at 1.25%• Bright spot – Chemicals