Fast Take: N.A. Chems & Pkg

Research evidence excerpt

Fast Take: N.A. Chems & Pkg

Valuation Method and Risk Statement

Earnings for commodity chemical companies are sensitive to swings in energy costs, especially

oil and natural gas. Commodity chemical margins are influenced by market supply and

demand dynamics that individual companies cannot control. As technology evolves, existing

assets and businesses can become less competitive as newer, low-cost processes are

developed. Historically, valuations for commodity chemical companies tend to be volatile. Our

price targets are based on a P/E multiple in relation to the local market and on EV/EBITDA

compared to the local market.

Volumes for packaging companies are generally driven by macroeconomic factors, mainly

non-durable industrial production and eCommerce more recently. The companies are

exposed to commodities and have high operational leverage to operating rates and prices;

however, the global reach of the leading companies and degree of diversification are factors

reducing the risk associated to one product or market area. We value them using an EV/

EBITDA valuation framework.

PKG: Our price target is based on an EV/EBITDA multiple relative to the local market. Paper

packaging company volumes are generally driven by macro-economic factors, including

demand for non-durable industrial production, e-commerce, processed foods, poultry, meat,

and agricultural products. Any decline in macroeconomic activity or consumer demand could

affect volumes negatively. Additionally, major costs affecting profitability of paper companies

are raw material, energy and freight and increases in these costs can impact margins. If

earnings decline substantially due to lower demand or higher costs, the stock would likely

decline as well.