FocusLyondellBasell Q2 results show upside potential – analysts

16 August 2010 22:00  [Source: ICIS news]

By Joseph Chang

NEW YORK (ICIS)--The strength of LyondellBasell’s second-quarter (Q2) results highlights the company’s significant leverage to the upward cycle of petrochemicals, Wall Street analysts said on Monday.

LyondellBasell posted adjusted Q2 EBITDAR (earnings before interest, tax, depreciation, amortisation and restructuring costs) of $1.07bn ($835m), nearly double the $537m in the year-ago period. Year-over-year sales were 40% higher at $10.5bn.

Calling the results “fantastic”, Jefferies analyst Stephen Grahling said the over $1bn in EBITDAR was “a solid beat to what we believe were street whisper figures of approximately $700m in EBITDA. The improvement was due to better ethylene and polyolefin margins in North America and Europe.”

Excluding reorganisation items and a $333m non-cash LCM (lower of cost or market) inventory charge, EBITDAR was $1.4bn in Q2 – up from $571m in the year-ago period and $640m in the first quarter.

Alembic Global Advisors analyst Hassan Ahmed noted that recurring EBITDAR of $1.4bn dwarfed his $879m estimate and showed a marked improvement from already strong Q1 figures.

“We believe these results highlight the substantial cost advantage being enjoyed by US ethane-based commodity chemical producers on the back of a crude oil and natural gas price disconnect in general, and shale gas-driven low US natural gas and ethane prices in particular,” said Ahmed in a research note.

The analyst said he was forecasting $2.9bn in EBITDAR for LyondellBasell in 2010 versus $2.2bn in 2009, but added that that estimate “may prove to be conservative after today’s results”.

“We believe LyondellBasell could soon become the chemical sector investment vehicle of choice. LyondellBasell shares, in our opinion, offer substantial leverage to the commodity chemical up-cycle at what we consider to be a very attractive price,” he said.

LyondellBasell moved higher on Monday by 68 cents, or 3.8%, to close at $18.70/share on the New York Stock Exchange.

Ahmed had an “overweight” rating on the stock and a $25 price target.

Meanwhile, Grahling placed a fair-value range of $21.75-25.75/share on LyondellBasell shares.

($1 = €0.78)

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By: Joseph Chang
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