US Huntsman upgraded to ‘buy’ on TiO2 strength - Jefferies

18 October 2010 22:32  [Source: ICIS news]

NEW YORK (ICIS)--US-based chemical company Huntsman was upgraded by investment bank Jefferies & Co to a “buy” rating on Monday, because of growing pricing strength in titanium dioxide (TiO2) and an expected recovery in polyurethanes.

Even though Cristal's 110,000 tonne/year Ash 2 unit should be back on stream by November, the TiO2 industry will likely have other turnarounds, analyst Laurence Alexander said in a research note.

Those turnarounds, as well as stronger demand, should help Huntsman realise a 4-5% effective quarter-on-quarter price increase in the third quarter, Alexander said.

That could be followed by 3-4% in the fourth quarter and 3-6% in the first quarter, he said. Ultimately, the average selling price could reach $2,535-2,650/tonne (€1,800-1,882) versus $2,300/tonne in the second quarter of 2010.

Cristal’s Ash 2 unit in Ashtabula, Ohio, has been down since the end of September, prompting the company to declare force majeure on TiO2 from the site.

The unit is in the process of being restarted at reduced rates, said Cristal spokesperson Amy Drusano on 15 October.

The analyst maintained his 2010 earnings per share estimate on Huntsman at 55 cents, but raised his 2011 earnings-per-share forecast by 5 cents, to $1.10. He estimates 2012 earnings per share will rise to $1.45.

Alexander also raised his price target on Huntsman’s shares from $12 to $17, representing a multiple of 6.0 times 2011 earnings before interest, tax, depreciation and amortisation (EBITDA) and 5.5 times 2012 EBITDA.

He also cited improved prospects for methyl di-p-phenylene isocyanate (MDI) “once construction markets stabilise in the developed world.”

The analyst estimates that roughly 75% of Huntsman’s sales are derived from what he calls “oligopolies”. This comprises 75% of its polyurethanes business, 100% of pigments, 70% of performance products and two-thirds of the rest, he said.

Additional reporting by Larry Terry

($1 = €0.71)

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By: Al Greenwood
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