Intrinsic value of LyondellBasell Industries - LYB

Previous Close

$88.77

  Intrinsic Value

$608.04

stock screener

  Rating & Target

str. buy

+585%

  Value-price divergence*

+47%

Previous close

$88.77

 
Intrinsic value

$608.04

 
Up/down potential

+585%

 
Rating

str. buy

 
Value-price divergence*

+47%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of LYB stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 35.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -10.85
  25.00
  23.00
  21.20
  19.58
  18.12
  16.81
  15.63
  14.57
  13.61
  12.75
  11.97
  11.28
  10.65
  10.08
  9.58
  9.12
  8.71
  8.34
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.60
  6.44
  6.29
  6.16
  6.05
  5.94
Revenue, $m
  29,183
  36,479
  44,869
  54,381
  65,029
  76,813
  89,726
  103,749
  118,861
  135,037
  152,252
  170,482
  189,706
  209,907
  231,073
  253,199
  276,285
  300,339
  325,373
  351,409
  378,474
  406,600
  435,828
  466,204
  497,778
  530,608
  564,757
  600,292
  637,288
  675,823
  715,981
Variable operating expenses, $m
 
  25,960
  31,918
  38,674
  46,236
  54,605
  63,775
  73,734
  84,466
  95,955
  108,181
  121,075
  134,727
  149,074
  164,106
  179,820
  196,215
  213,298
  231,077
  249,568
  268,789
  288,764
  309,521
  331,093
  353,517
  376,833
  401,085
  426,322
  452,596
  479,963
  508,483
Fixed operating expenses, $m
 
  3,489
  3,576
  3,666
  3,757
  3,851
  3,948
  4,046
  4,147
  4,251
  4,357
  4,466
  4,578
  4,692
  4,810
  4,930
  5,053
  5,180
  5,309
  5,442
  5,578
  5,717
  5,860
  6,007
  6,157
  6,311
  6,469
  6,630
  6,796
  6,966
  7,140
Total operating expenses, $m
  24,107
  29,449
  35,494
  42,340
  49,993
  58,456
  67,723
  77,780
  88,613
  100,206
  112,538
  125,541
  139,305
  153,766
  168,916
  184,750
  201,268
  218,478
  236,386
  255,010
  274,367
  294,481
  315,381
  337,100
  359,674
  383,144
  407,554
  432,952
  459,392
  486,929
  515,623
Operating income, $m
  5,076
  7,030
  9,374
  12,042
  15,036
  18,357
  22,003
  25,968
  30,247
  34,831
  39,714
  44,941
  50,400
  56,140
  62,157
  68,449
  75,017
  81,861
  88,987
  96,400
  104,107
  112,119
  120,447
  129,103
  138,104
  147,464
  157,203
  167,340
  177,896
  188,894
  200,358
EBITDA, $m
  6,140
  8,352
  10,989
  13,987
  17,352
  21,083
  25,178
  29,631
  34,436
  39,583
  45,065
  50,874
  57,002
  63,445
  70,199
  77,261
  84,632
  92,313
  100,310
  108,629
  117,278
  126,269
  135,614
  145,327
  155,426
  165,929
  176,857
  188,230
  200,074
  212,412
  225,274
Interest expense (income), $m
  346
  344
  516
  714
  938
  1,190
  1,468
  1,773
  2,104
  2,460
  2,842
  3,248
  3,679
  4,132
  4,609
  5,109
  5,631
  6,176
  6,743
  7,334
  7,949
  8,587
  9,251
  9,941
  10,658
  11,403
  12,178
  12,984
  13,822
  14,695
  15,605
Earnings before tax, $m
  5,233
  6,686
  8,858
  11,328
  14,097
  17,167
  20,535
  24,196
  28,143
  32,371
  36,872
  41,693
  46,722
  52,008
  57,548
  63,341
  69,386
  75,686
  82,244
  89,066
  96,159
  103,532
  111,196
  119,163
  127,446
  136,061
  145,025
  154,356
  164,074
  174,198
  184,753
Tax expense, $m
  1,386
  1,805
  2,392
  3,058
  3,806
  4,635
  5,544
  6,533
  7,599
  8,740
  9,955
  11,257
  12,615
  14,042
  15,538
  17,102
  18,734
  20,435
  22,206
  24,048
  25,963
  27,954
  30,023
  32,174
  34,410
  36,737
  39,157
  41,676
  44,300
  47,034
  49,883
Net income, $m
  3,836
  4,881
  6,467
  8,269
  10,291
  12,532
  14,991
  17,663
  20,544
  23,631
  26,916
  30,436
  34,107
  37,966
  42,010
  46,239
  50,652
  55,251
  60,038
  65,018
  70,196
  75,578
  81,173
  86,989
  93,036
  99,325
  105,869
  112,680
  119,774
  127,165
  134,870

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,022
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  23,442
  26,783
  32,943
  39,927
  47,745
  56,398
  65,878
  76,174
  87,269
  99,146
  111,785
  125,170
  139,285
  154,116
  169,657
  185,902
  202,853
  220,513
  238,894
  258,010
  277,881
  298,532
  319,991
  342,293
  365,476
  389,580
  414,652
  440,743
  467,906
  496,199
  525,683
Adjusted assets (=assets-cash), $m
  21,420
  26,783
  32,943
  39,927
  47,745
  56,398
  65,878
  76,174
  87,269
  99,146
  111,785
  125,170
  139,285
  154,116
  169,657
  185,902
  202,853
  220,513
  238,894
  258,010
  277,881
  298,532
  319,991
  342,293
  365,476
  389,580
  414,652
  440,743
  467,906
  496,199
  525,683
Revenue / Adjusted assets
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
Average production assets, $m
  10,159
  12,695
  15,614
  18,925
  22,630
  26,731
  31,225
  36,105
  41,363
  46,993
  52,984
  59,328
  66,018
  73,048
  80,413
  88,113
  96,147
  104,518
  113,230
  122,290
  131,709
  141,497
  151,668
  162,239
  173,227
  184,651
  196,535
  208,902
  221,776
  235,186
  249,161
Working capital, $m
  5,059
  4,523
  5,564
  6,743
  8,064
  9,525
  11,126
  12,865
  14,739
  16,745
  18,879
  21,140
  23,523
  26,028
  28,653
  31,397
  34,259
  37,242
  40,346
  43,575
  46,931
  50,418
  54,043
  57,809
  61,724
  65,795
  70,030
  74,436
  79,024
  83,802
  88,782
Total debt, $m
  8,981
  12,585
  17,415
  22,890
  29,019
  35,803
  43,235
  51,307
  60,006
  69,317
  79,227
  89,720
  100,786
  112,414
  124,598
  137,335
  150,624
  164,469
  178,880
  193,867
  209,446
  225,636
  242,460
  259,945
  278,120
  297,018
  316,674
  337,130
  358,425
  380,607
  403,723
Total liabilities, $m
  17,394
  20,998
  25,828
  31,303
  37,432
  44,216
  51,648
  59,720
  68,419
  77,730
  87,640
  98,133
  109,199
  120,827
  133,011
  145,748
  159,037
  172,882
  187,293
  202,280
  217,859
  234,049
  250,873
  268,358
  286,533
  305,431
  325,087
  345,543
  366,838
  389,020
  412,136
Total equity, $m
  6,048
  5,785
  7,116
  8,624
  10,313
  12,182
  14,230
  16,454
  18,850
  21,416
  24,146
  27,037
  30,085
  33,289
  36,646
  40,155
  43,816
  47,631
  51,601
  55,730
  60,022
  64,483
  69,118
  73,935
  78,943
  84,149
  89,565
  95,201
  101,068
  107,179
  113,548
Total liabilities and equity, $m
  23,442
  26,783
  32,944
  39,927
  47,745
  56,398
  65,878
  76,174
  87,269
  99,146
  111,786
  125,170
  139,284
  154,116
  169,657
  185,903
  202,853
  220,513
  238,894
  258,010
  277,881
  298,532
  319,991
  342,293
  365,476
  389,580
  414,652
  440,744
  467,906
  496,199
  525,684
Debt-to-equity ratio
  1.485
  2.180
  2.450
  2.650
  2.810
  2.940
  3.040
  3.120
  3.180
  3.240
  3.280
  3.320
  3.350
  3.380
  3.400
  3.420
  3.440
  3.450
  3.470
  3.480
  3.490
  3.500
  3.510
  3.520
  3.520
  3.530
  3.540
  3.540
  3.550
  3.550
  3.560
Adjusted equity ratio
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3,836
  4,881
  6,467
  8,269
  10,291
  12,532
  14,991
  17,663
  20,544
  23,631
  26,916
  30,436
  34,107
  37,966
  42,010
  46,239
  50,652
  55,251
  60,038
  65,018
  70,196
  75,578
  81,173
  86,989
  93,036
  99,325
  105,869
  112,680
  119,774
  127,165
  134,870
Depreciation, amort., depletion, $m
  1,064
  1,322
  1,614
  1,945
  2,316
  2,726
  3,175
  3,663
  4,189
  4,752
  5,351
  5,933
  6,602
  7,305
  8,041
  8,811
  9,615
  10,452
  11,323
  12,229
  13,171
  14,150
  15,167
  16,224
  17,323
  18,465
  19,654
  20,890
  22,178
  23,519
  24,916
Funds from operations, $m
  5,980
  6,203
  8,081
  10,214
  12,607
  15,258
  18,166
  21,326
  24,734
  28,383
  32,268
  36,368
  40,709
  45,271
  50,052
  55,050
  60,267
  65,702
  71,361
  77,247
  83,367
  89,728
  96,340
  103,213
  110,358
  117,790
  125,522
  133,570
  141,951
  150,683
  159,786
Change in working capital, $m
  374
  905
  1,040
  1,180
  1,320
  1,461
  1,601
  1,739
  1,874
  2,006
  2,135
  2,261
  2,384
  2,505
  2,625
  2,744
  2,863
  2,983
  3,104
  3,228
  3,356
  3,488
  3,624
  3,767
  3,915
  4,071
  4,234
  4,406
  4,588
  4,778
  4,980
Cash from operations, $m
  5,606
  5,299
  7,040
  9,035
  11,287
  13,797
  16,565
  19,587
  22,860
  26,377
  30,133
  34,108
  38,325
  42,766
  47,427
  52,307
  57,404
  62,720
  68,257
  74,019
  80,011
  86,240
  92,715
  99,446
  106,443
  113,719
  121,288
  129,164
  137,364
  145,905
  154,806
Maintenance CAPEX, $m
  0
  -1,016
  -1,269
  -1,561
  -1,892
  -2,263
  -2,673
  -3,122
  -3,610
  -4,136
  -4,699
  -5,298
  -5,933
  -6,602
  -7,305
  -8,041
  -8,811
  -9,615
  -10,452
  -11,323
  -12,229
  -13,171
  -14,150
  -15,167
  -16,224
  -17,323
  -18,465
  -19,654
  -20,890
  -22,178
  -23,519
New CAPEX, $m
  -2,243
  -2,536
  -2,920
  -3,310
  -3,705
  -4,101
  -4,493
  -4,880
  -5,259
  -5,629
  -5,991
  -6,344
  -6,690
  -7,030
  -7,366
  -7,700
  -8,034
  -8,371
  -8,712
  -9,061
  -9,418
  -9,788
  -10,171
  -10,571
  -10,988
  -11,425
  -11,884
  -12,366
  -12,875
  -13,410
  -13,975
Cash from investing activities, $m
  -2,297
  -3,552
  -4,189
  -4,871
  -5,597
  -6,364
  -7,166
  -8,002
  -8,869
  -9,765
  -10,690
  -11,642
  -12,623
  -13,632
  -14,671
  -15,741
  -16,845
  -17,986
  -19,164
  -20,384
  -21,647
  -22,959
  -24,321
  -25,738
  -27,212
  -28,748
  -30,349
  -32,020
  -33,765
  -35,588
  -37,494
Free cash flow, $m
  3,309
  1,747
  2,851
  4,163
  5,689
  7,433
  9,398
  11,585
  13,990
  16,611
  19,443
  22,465
  25,702
  29,134
  32,756
  36,565
  40,559
  44,734
  49,093
  53,635
  58,363
  63,281
  68,394
  73,709
  79,231
  84,971
  90,939
  97,144
  103,599
  110,317
  117,313
Issuance/(repayment) of debt, $m
  989
  4,200
  4,830
  5,475
  6,129
  6,783
  7,433
  8,072
  8,699
  9,311
  9,909
  10,494
  11,066
  11,628
  12,184
  12,736
  13,289
  13,846
  14,410
  14,987
  15,579
  16,190
  16,824
  17,485
  18,175
  18,898
  19,657
  20,455
  21,296
  22,182
  23,116
Issuance/(repurchase) of shares, $m
  -2,938
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -1,954
  4,200
  4,830
  5,475
  6,129
  6,783
  7,433
  8,072
  8,699
  9,311
  9,909
  10,494
  11,066
  11,628
  12,184
  12,736
  13,289
  13,846
  14,410
  14,987
  15,579
  16,190
  16,824
  17,485
  18,175
  18,898
  19,657
  20,455
  21,296
  22,182
  23,116
Total cash flow (excl. dividends), $m
  1,346
  5,947
  7,681
  9,639
  11,818
  14,216
  16,831
  19,657
  22,689
  25,923
  29,352
  32,959
  36,768
  40,762
  44,940
  49,302
  53,848
  58,580
  63,503
  68,622
  73,942
  79,472
  85,219
  91,193
  97,406
  103,869
  110,596
  117,599
  124,895
  132,499
  140,428
Retained Cash Flow (-), $m
  502
  -1,163
  -1,331
  -1,509
  -1,689
  -1,869
  -2,048
  -2,224
  -2,397
  -2,565
  -2,730
  -2,891
  -3,049
  -3,204
  -3,357
  -3,509
  -3,661
  -3,815
  -3,970
  -4,129
  -4,292
  -4,461
  -4,635
  -4,817
  -5,007
  -5,207
  -5,416
  -5,636
  -5,867
  -6,111
  -6,369
Prev. year cash balance distribution, $m
 
  1,426
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  6,210
  6,350
  8,130
  10,129
  12,347
  14,783
  17,433
  20,292
  23,357
  26,622
  30,068
  33,719
  37,559
  41,583
  45,793
  50,186
  54,766
  59,533
  64,493
  69,650
  75,011
  80,584
  86,376
  92,399
  98,663
  105,180
  111,963
  119,028
  126,388
  134,060
Discount rate, %
 
  4.60
  4.83
  5.07
  5.33
  5.59
  5.87
  6.16
  6.47
  6.80
  7.14
  7.49
  7.87
  8.26
  8.67
  9.11
  9.56
  10.04
  10.54
  11.07
  11.62
  12.21
  12.82
  13.46
  14.13
  14.84
  15.58
  16.36
  17.17
  18.03
  18.93
PV of cash for distribution, $m
 
  5,937
  5,778
  7,009
  8,231
  9,407
  10,498
  11,469
  12,287
  12,925
  13,362
  13,581
  13,589
  13,384
  12,977
  12,387
  11,640
  10,766
  9,799
  8,773
  7,723
  6,681
  5,677
  4,735
  3,874
  3,106
  2,439
  1,874
  1,407
  1,032
  738
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

LyondellBasell Industries N.V. operates as a manufacturer of chemicals and polymers, refiner of crude oil, producer of gasoline blending components, and developer and licensor of technologies for production of polymers worldwide. The company operates in five segments: Olefins and Polyolefins—Americas; Olefins and Polyolefins—Europe, Asia, International; Intermediates and Derivatives; Refining; and Technology. It produces and markets olefins, including ethylene, propylene, and butadiene; polyethylene products, which consist of high density polyethylene, low density polyethylene, and linear low density polyethylene; polyolefins, such as polyethylene and polypropylene (PP); and PP homopolymers, copolymers, and compounds. The company also produces and sells propylene oxide and its derivatives; oxyfuels and related products; and intermediate chemicals, such as styrene monomers, methanol products, glacial acetic acids, vinyl acetate monomers, and ethylene oxides and derivatives. In addition, it refines crude oil into gasoline, diesel, and jet fuel; develops and licenses chemical and polyolefin process technologies; and manufactures and sells polyolefin catalysts, as well as purchases and sells ethylene. The company also exports its products. LyondellBasell Industries N.V. was founded in 2005 and is based in London, the United Kingdom.

FINANCIAL RATIOS  of  LyondellBasell Industries (LYB)

Valuation Ratios
P/E Ratio 9.4
Price to Sales 1.2
Price to Book 5.9
Price to Tangible Book
Price to Cash Flow 6.4
Price to Free Cash Flow 10.7
Growth Rates
Sales Growth Rate -10.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 55.8%
Cap. Spend. - 3 Yr. Gr. Rate 7.5%
Financial Strength
Quick Ratio 3
Current Ratio 0.1
LT Debt to Equity 138.6%
Total Debt to Equity 148.5%
Interest Coverage 16
Management Effectiveness
Return On Assets 17.7%
Ret/ On Assets - 3 Yr. Avg. 18.3%
Return On Total Capital 25.9%
Ret/ On T. Cap. - 3 Yr. Avg. 26.9%
Return On Equity 60.9%
Return On Equity - 3 Yr. Avg. 53.8%
Asset Turnover 1.3
Profitability Ratios
Gross Margin 20.6%
Gross Margin - 3 Yr. Avg. 19%
EBITDA Margin 22.8%
EBITDA Margin - 3 Yr. Avg. 20.5%
Operating Margin 17.4%
Oper. Margin - 3 Yr. Avg. 16.2%
Pre-Tax Margin 17.9%
Pre-Tax Margin - 3 Yr. Avg. 16.5%
Net Profit Margin 13.1%
Net Profit Margin - 3 Yr. Avg. 12%
Effective Tax Rate 26.5%
Eff/ Tax Rate - 3 Yr. Avg. 27.1%
Payout Ratio 36.4%

LYB stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LYB stock intrinsic value calculation we used $29183 million for the last fiscal year's total revenue generated by LyondellBasell Industries. The default revenue input number comes from 2016 income statement of LyondellBasell Industries. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our LYB stock valuation model: a) initial revenue growth rate of 25% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.6%, whose default value for LYB is calculated based on our internal credit rating of LyondellBasell Industries, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of LyondellBasell Industries.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of LYB stock the variable cost ratio is equal to 71.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $3404 million in the base year in the intrinsic value calculation for LYB stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.1% for LyondellBasell Industries.

Corporate tax rate of 27% is the nominal tax rate for LyondellBasell Industries. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the LYB stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for LYB are equal to 34.8%.

Life of production assets of 10 years is the average useful life of capital assets used in LyondellBasell Industries operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for LYB is equal to 12.4%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $6048 million for LyondellBasell Industries - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 402.173 million for LyondellBasell Industries is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of LyondellBasell Industries at the current share price and the inputted number of shares is $35.7 billion.

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COMPANY NEWS

▶ LyondellBasell Board Authorizes Quarterly Dividend   [Aug-23-17 06:45AM  PR Newswire]
▶ 6 Undervalued Stocks Based on the Peter Lynch Value   [Aug-03-17 06:26PM  GuruFocus.com]
▶ Analysts Views on LyondellBasell after Its 2Q17 Earnings   [Jul-31-17 03:35PM  Market Realist]
▶ Why Did LyondellBasells Revenue Rise in 2Q17?   [02:06PM  Market Realist]
▶ LyondellBasell beats 2Q profit forecasts   [Jul-28-17 10:07PM  Associated Press]
▶ LyondellBasell gives final green light to $2.4B chemical plant in Houston area   [Jul-21-17 09:30AM  American City Business Journals]
▶ Whos LyondellBasell Cooking up a License Deal with Now?   [Jul-18-17 10:37AM  Market Realist]
▶ Why Eastman Chemical Is Trading at a Premium to Its Peers   [Jul-10-17 09:06AM  Market Realist]
▶ LyondellBasells Debt Is on the Rise   [11:05AM  Market Realist]
▶ Will Pandora Shares Soar to $16 -- or Plummet to $3.50?   [Jun-26-17 11:18AM  TheStreet.com]
▶ What Analysts Recommend for LyondellBasell   [May-29-17 09:07AM  Market Realist]
▶ LyondellBasell Pleases Investors with Dividend Increase   [May-26-17 05:22PM  Market Realist]
▶ LyondellBasell to Build Hyperzone Polyethylene Plant   [May-22-17 05:39PM  Market Realist]
▶ LyondellBasell starts construction on Gulf Coast plant using new technology   [May-16-17 04:10PM  American City Business Journals]
▶ Material ETFs Rise on Solid Q1 Earnings   [May-08-17 10:21AM  Zacks]
▶ [$$] Chemical industry split about the case for more US plants   [May-02-17 01:00PM  Financial Times]
▶ LyondellBasell misses 1Q profit forecasts   [06:56AM  Associated Press]
▶ [$$] Judge Dismisses Most of Lyondell Bankruptcy Lawsuit   [Apr-21-17 08:28PM  The Wall Street Journal]
▶ Why DuPont Trades at a Premium to Its Peers   [Apr-20-17 09:07AM  Market Realist]
▶ Opening Bell, April 5, 2107   [Apr-05-17 09:29AM  CNBC Videos]
▶ Inside Eastman Chemicals Latest Valuations   [09:07AM  Market Realist]
▶ Chemicals Industry Stock Outlook - March 2017   [Mar-29-17 03:46PM  Investopedia]
▶ Dow Chemical Trades at a Premium to Its Peers   [Mar-23-17 07:37AM  Market Realist]
Financial statements of LYB
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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