Commodity Chemical Companies versus Construction Materials Companies

In a recent blog, I compared financial data for commodity versus specialty chemical companies (click here to read that blog).   The financial data comparisons showed significant differences between the two types of chemical companies, and in that blog I suggested possible explanations for the differences.

After I wrote that blog, I became interested in how financial data of another group of companies (construction materials companies), whose business is providing material commodities, might compare with the financial data of commodity chemical companies.   Whereas construction materials companies provide such commodities as crushed stone, sand, gravel, lime, gypsum, cement, and asphalt, commodity chemical companies provide, for the most part, fossil fuels-derived chemical commodities.

The following two tables show, first, the financial data for eight construction material companies, and second, the financial data for ten commodity chemical companies.  (The six financial data are: p/e – price to earnings ratio; % div – dividend % yield; roe – return on equity; gpm – gross profit margin; npm – net profit margin; and ltd/eq – long term debt as a percentage of total equity.)

  

Contruction Materials Companies
company	p/e	% div	roe	gpm	npm	ltd/eq
CEMEX	8.98	0	8.72	32.2	5.5	83.61
CRH PLC	11.95	3.09	12.86	33.85	8.46	55.91
Eagle Materilas	14.5	0.78	29.47	27.36	20.42	68.56
LOMA	10.21	0	13.12	31.54	9.94	1.12
Martin Marrietta	32.17	0.68	11.29	24.91	12.97	78.05
Summit Materials	22.18	0	8.92	27.94	6.4	88.56
United States Lime & Minerals	17.52	0.7	14.21	31.31	19.57	0
Vulcan Materials	33.86	0.94	10.72	24.74	12.13	60.13
averages	18.9	0.8	13.7	29.2	11.9	54.5

  

Commodity Chemical Companies
company	p/e	% div	roe	gpm	npm	ltd/eq
AdvanSix	7.29	1.42	26.75	16.27	8.3	22.46
Dow	7.15	4.67	41.04	19.61	11.65	78.91
Hawkins	18.42	1.28	18.24	19.87	7.0	36.31
Koppers	7.73	0	24.08	21.03	4.88	202.47
Lyondellbasell	5.73	4.59	60.11	19.63	13.93	109.7
Methanex	7.5	1.05	34.06	24.35	12.59	164.25
Tredegar	8.9	4.21	19.77	19.81	5.35	86.82
Trinseo	7.4	2.45	34.88	14.48	5.79	227.58
Tronox	11.34	2.45	15.49	24.72	8.48	128.29
Westlake	6.82	1.12	5.46	13.63	4.4	61.74
averages	8.8	2.3	28.0	19.3	8.2	111.9

 

The higher average p/e for the construction materials companies suggests that owners are willing to pay more for these companies.   The higher % div and roe for the commodity chemical companies would suggest otherwise, because the higher % div and roe indicate a higher current return for owners.

 Therefore the higher p/e is likely an indication of future return expectations.  Higher gpm and npm, and lower ltd/eq suggests higher future returns, if they are maintained, and support a higher p/e.   Higher gpm and npm should lead to higher income (and returns for owners).  And a lower ltd/eq indicates less of a debt burden, which also could lead to higher returns.

 A higher gpm (which the construction materials companies have) might mean that these companies face lower competition (and could get higher prices compared to costs), than the commodity chemical companies.   Lower competition could be for a variety of reasons.

 Another factor that might make construction materials companies more expensive (higher p/e) is the recently-passed United States Government infrastructure bill, which should lead to increased business (and returns) for construction materials companies.

 Also relying on fossil fuels as a raw material could make commodity chemical companies less attractive giving a lower p/e.

 If special chemical companies financial data, shown in the table below, is compared to the construction materials companies data above, what is found is that construction materials companies financial data is much more similar to special chemical companies data than to commodity chemical companies.  A primary reason for this perhaps is in the characteristics that the companies have with their customers – the characteristics are very similar for both the construction materials and for the specialty chemical companies.  The commodity chemical companies’ characteristics with it customers are different.

  

Specialty Chemical Companies
company	p/e	% div	roe	gpm	npm	ltd/eq
Ashland	39.46	1.29	4.93	31.56	7	57.19
Celanese	8.1	1.96	49.57	31.42	22.47	75.82
Chase	19.21	1.13	13.39	39.46	14.55	0
Dupont	23.42	1.76	5.41	35.13	10.83	40.22
Eastman	18.93	2.55	14.23	23.86	8.28	87.48
Element Solutions	25.55	1.37	9.62	41.35	9.62	76.52
H.B. Fuller	23.14	0.98	10.84	25.78	4.69	99.67
New Market	17.57	2.72	25.03	23.25	8.1	103.64
Quaker	23.19	0.85	11.58	35.16	8.25	60.68
Stepan	17.57	1.29	13.37	16.87	5.88	30.06
averages	21.6	1.6	15.8	30.4	10.0	63.1