Analysts cut Ciba forecasts, ratings on poor Q2

20 August 2008 15:16  [Source: ICIS news]

LONDON (ICIS news)--Analysts on Wednesday cut ratings and earnings estimates for Ciba Specialty Chemcials after the company reported second-quarter earnings before interest and tax (EBIT) 50% below consensus this week.

Equity analysts from Citi said in a note to clients that they had cut the Swiss company’s 2008 earnings per share (EPS) forecast by 35% and 2009 by 30%.

The company’s target share price was slashed to Swiss francs (Swfr) 25, from Swfr 30.  

“Ciba’s management has dented its credibility further, in our view, by keeping full-year guidance intact,” said the analysts.

“To meet it requires [second half] H2 EBIT to be 91% higher than in [ the first half] H1 - this looks almost impossible given macro trends and seasonal weakness in H2,” they added.

Citi said poor controls had provoked profit declines earlier at Ciba than at its peers at the start of an industrial downturn.

“We believe trading conditions will worsen further in the next 12 months and Ciba, with a stretched balance sheet has little room to manoeuvre,” the analysts added.

At the same time, ratings agency Standard & Poor’s said it had cut Ciba’s long-term corporate credit rating to "BBB-", from "BBB", with a negative outlook. The "A-3" short-term rating was affirmed.

"The downgrade and negative outlook reflects a significant deterioration in Ciba's profitability and cash flow generation, which has accelerated significantly in the first half of 2008, as well as the company's continuously shareholder-friendly dividend policy," said Standard & Poor's credit analyst Tobias Mock.

"Furthermore, the company announced significant strategic portfolio changes and a focus on growth, including acquisitions, in the coming years, which could lead to a further deterioration in credit quality," he added.

Ciba on Tuesday posted a first-half net loss of Swiss francs (Swfr) 569m ($517.6m/€353.07m), compared with a profit of Swfr103m last year due to an impairment cost in its water and paper treatment segment, as the company said it was considering divesting its paper and publication inks businesses.

Sales dropped 7% in the first half of 2008 to Swfr3.08bn and operating income fell 41% to Swfr161m year on year as margins were hit by a significant rise in raw material costs and negative currency effects.

The company’s shares fell 4.52% on the Swiss stock exchange to Swfr 25.32 at 13:10 GMT.

($1 = €0.68)

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By: Hilde Ovrebekk
+44 20 8652 3214

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