Albemarle is organized around three major markets. The first one is lithium: the company is the industry leader, in one of the highest growth markets in the specialty chemicals industry. It’s their unique natural resource position, where derivatization capabilities and technology leadership give them a sustainable competitive advantage. The second one is bromine specialties, which play a leading role in providing performance solutions for fire safety, oilfield drilling, pharmaceutical manufacturing, high-tech cleaning, water treatment and food safety for a growing world. The last one is catalysts, where Albemarle provides top-performance, technologies and related services to the refining and petrochemical industries. 

The right balance 
 
The year 2021 saw an acquisition in China, illustrating the group's dynamic development strategy. Uangxi Tianyuan New Energy Materials has enabled it to strengthen its specialized, high value-added lithium services business in China. 
 
Unlike other industry players who are struggling to move away from their dependence on the lithium sector, Albemarle has a well-diversified customer portfolio: lithium and polymer solutions (41%), bromine (33.9%), catalysts (22.9%), other (2.2%). The same applies geographically, with a well-balanced portfolio between continental Europe, North America and emerging countries. The American group also has, and this is a particularity compared to its competitors to point out, a good establishment in the Arabic-speaking countries. 
 
There are still large and lucrative market segments to be conquered but another priority for the group is to develop the share of exports in the specialized service sectors, with higher added value than other activities.  
 
In any case, over the long term, all operational metrics - volume, productivity, business diversification - are constantly improving. The business has excellent visibility and this allows for good planning of investments and development. This is also the reason for the share's historical high price.
 
An attractive business
 
Undeniably, the group offers its clients an extremely attractive value proposition. The company can outsource the costly set up of operating sites or infrastructures which requires a high level of expertise in technology, as well as in recruitment and training. These are significant investments that a non pure-player would have difficulty in making profitable, especially if it is necessary to reproduce the infrastructures in different markets (it is not the same thing to open an operating mine in the United States and in Chile). 
The group's customers - mainly large multinationals - want the assurance that their suppliers, via various operating sites, will remain functional, economical and efficient (even if it means paying the price). They appreciate being able to deal with a majority partner who takes responsibility for the delivery of the basic elements necessary for production. All the more so if the partner is reliable and well organized and can deploy a functional infrastructure in record time and with less risk.
 
This value proposition and its proven expertise are reflected in its financial performance, which is excellent at all levels. Market capitalization has improved continuously over the last decade (2012-2022) with a CAGR of 17%, well above market performance.
Controlled management
 
Over the study period (2012-2022), Albemarle's revenues more than triple from $2745 billion to an estimated $6097 billion, while the operating profit (EBIT) increased by 223% over the period and net income rose 443%. 
 
The expansion of margins over the long cycle is linked to digital, automation and offshoring, which are driving significant productivity gains, but also to the operating leverage of the business.
 
The balance sheet is solid and the increase in debt to $2714 billion, 12 times higher than in 2012, is directly related to the various acquisitions made by the company. Leverage remains under control at less than two times EBITDA and return on equity is improving significantly.
 
The company is not cash flow positive, due to the various acquisitions and opening of new operating sites, but according to analysts, Albemarle should enjoy a significant and growing cash flow from 2023 onwards, compared to the capex that has been rising strongly since 2012.
 
The competitors
 
As we seen before, its position as one of the world’s leaders doesn’t have to be proven. Its financial statement is stronger than two of its main competitors: Air Liquide (France) and Lyondellbasell (USA). Actually, if we look at the EPS previsions for 2022-2023 and 2024, Albemarle is way stronger than its competitors. In the meantime, analyst previsions for EPS have a direct impact on the stock value and price. In 2022, they have been revised up by 133% since the start of the year – much higher than Air Liquide and Lyondellbasell, which respectively increased by 4.35% and 13.71%. If we have a different horizon of time, previsions for 2024 include a rise of 92.86% for Albemarle and 23.45% for Lyondellbasell, compared to a decrease of -2.29% for Air Liquide.
 
Risk to be considered
 
As we know, the Albemarle’s business is 41% based on lithium which means they have a huge exposition to it and are very dependent to it. It’s important to analyze risks, including demand and supply imbalance, the price, the ESG, the product quality and geopolitics. The main driver of lithium demand is the EV sector – as lithium is essential in the batteries used to power these cars – so sales are constantly reviewed to the upside. The main risks come from the supply side and the ability of the industry to supply the lithium units, to mine the lithium in order to supply the needs of the industry. It’s a basic concept in economy, if the demand soar but the supply is still the same, prices will rise, potentially too much. The increasing demand also has an impact on – the industry requires particular specifications – and companies are asking for always more. Production sites have to keep up with the demand and sometimes may not respect all regulation, which has an impact on quality and environment. The last risk is geopolitics, because mines are mainly located in South America and Australia. Covid brought a great challenge to manufactures, where the global demand was waiting for an increase in the production before things could potentially get worse, and show that dependence to one specific area can be dangerous for any industry. 

A valuation to match
 
With a current valuation of about 17 times last year's cash profit, we can see that quality is reflected in the price. However, a real avenue for growth remains, both organically and through industry consolidation (acquisitions). The group's competitive position is excellent and well protected thanks to its global scale, its proven expertise and a very sound financial base.