25 January 2007 09:10 [Source: ICIS news]
LONDON (ICIS news)--UBS on Thursday raised its target share price for Akzo Nobel by €6 ($7.8) to €57, upgraded its 2008-2010 earnings per share (EPS) estimates and said it expected a Pharma divestment to take place in the next three months.
"Our short-term earnings forecasts have not changed but we have upgraded our 2008, 2009 and 2010 EPS estimates by 1.4%, 3.0% and 4.1% respectively," the bank’s analysts said in a note to clients.
"Part of the upgrades came from our assumption that the company would be restructuring its decorative coatings business to raise EBIT [earnings before interest and tax] margin from the current 5.5% to 8.5% by 2010," they added.
The analysts said that when upgrading the forecasts they had also taken into account management’s drive to reduce working capital, especially in the coatings division.
They expected the Pharma divestment to take place in the next three months and saw a trade sale as a realistic possibility.
"A trade sale could allow Akzo Nobel to achieve a better price than IPO [initial public offering] and we have adjusted our valuation to take into account this possibility," the analysts said.
"Assuming that Akzo Nobel divests Pharma through a trade sale, management could be sitting on an €8-9bn cash stockpile, which they intend to use for acquisitions, but, in our opinion, also for share buybacks," they added.
After the divestment, management was expected to focus more on improving the operational performance of the remaining core activities, UBS said.
Akzo Nobel’s share price was at €48.30 at 08:12 GMT, down 0.8% from the previous close.
($1 = €0.77)
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