09 January 2007 12:03 [Source: ICIS news]
LONDON (ICIS news)--Merrill Lynch has increased its price target for Akzo Nobel prior to the potential disposal of its pharmaceutical business Organon, the firm said in a note to investors on Tuesday.
Analysts said they had upped their price objective to €55 ($71.6) from €50 due to expected upside from crystallising pharmaceutical value, higher profit growth in Coatings and Chemicals and better utilisation of the balance sheet.
Akzo Nobel said last week that its preferred method of shedding Organon was though an IPO but it now appears to be investigating a sale to trade buyers and private equity too.
Merrill Lynch described Akzo’s pharmaceutical pipeline as underappreciated, valuing Organon Bioscience – which includes Intervet – at €7.1bn.
It added that there was potential for a re-rating of Coatings and Chemicals.
“Coatings is an excellent cash generator and we think Chemicals is less cyclical than perceived,” said the report. “Profit growth is underpinned by €100m cost cutting, with more to come.”
Merrill Lynch added that Akzo has good free cash flow and disposals have strengthened its finances.
It estimated that Akzo had €3.5bn of spending power and following the exit of Organon it would have over €10bn.
($1 = €0.77)
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