This is the second year in a row that Boston Consulting Group has conducted a total shareholder return (TSR) analysis on the chemical industry. As we expected, many things have changed since last year. The top 10 chemical manufacturers still have good returns – in fact, fourth out of the 25 industries analyzed by BCG. But there have been some major changes in the composition of the top talent list. Chemical companies in the U.S. and Europe have made a comeback, replacing the emerging market chemical manufacturer that won the best TSR just a few years ago.
Another change is the relative improvement of the total TSR of high-end chemical manufacturers, while the momentum of the total TSR of commodity chemical companies is lost, especially in the agrochemicals and fertilizer sub sectors.
For a comprehensive analysis of the chemical industry, we scanned all stock exchanges around the world, including all chemical companies with a market capitalization of at least $2 billion at the end of 2012. In addition, each company’s shares must be listed for the whole period covered (we examined three different periods), and at least one quarter of the company’s shares must be freely tradable. This scan gives us a list of 106 companies in the five years to December 2012, 90 companies in the 10 years to December 2012, and 61 companies in the 20 years to December 2012. A larger sample from more recent times comes from the emergence of new companies.
The purpose of our study of these three time periods is to understand the success of these companies’ capital deployment plans. In many industries – the chemical industry, of course – the effect of capital investment will take years to see. Through the analysis of several time periods, we can also see how different chemical manufacturers behave in different stock market environment and industry changes. For example, in the 20 years since 1993, European chemical companies have not been as successful as pharmaceutical companies. The breakup of Zeneca by Imperial Chemical Industries was a groundbreaking deal, followed by a series of similar portfolio initiatives that reshaped the chemical industry.
Some of the companies on our list are also involved in important activities other than chemistry. As long as these activities are obviously secondary in terms of revenue, we include the company. We exclude companies whose chemical business is eclipsed by other more dominant industrial activities, including oil, gas and mining companies.
