Bank downgrades AkzoNobel on weakening sales volumes

02 July 2012 12:28  [Source: ICIS news]

PaintLONDON (ICIS)--JP Morgan Cazenove has downgraded Netherlands-based paints and coatings producer AkzoNobel to its “underweight” rating, from “neutral”, on weakening sales volumes, the investment bank said on Monday.

“Our previous optimism over the potential sequential margin benefit that AkzoNobel could derive from improving selling prices versus declining input costs is now being offset by concerns over weakening sales volumes in [its] Deco Paint [business] (Europe & Asia) as well as in specialty chemicals,” said JP Morgan Cazenove.

The bank said that broader concerns over the trajectory of chemicals demand and margins in the second half of 2012 apply equally to AkzoNobel’s specialty chemicals business.

“In the short-term, the business may benefit from falling input costs (as was the case in full year 2009). However, looking forward to the second half [of 2012] and 2013, weakening demand combined with new competitor capacity will likely weigh on pricing and margins in some key businesses,” it added.

“We therefore see limited scope for further margin expansion,” the bank said.

JP Morgan Cazenove also lowered AkzoNobel’s target share price to €36 ($46) from €42.

At 11:43 GMT, AkzoNobel’s shares were trading at €36.85 on Amsterdam's Euronext stock exchange, down 0.50% on the previous close.

At the same time, JP Morgan Cazenove also downgraded Belgian chemicals producer Solvay to its “neutral” rating from “overweight”.

“The business still contains elements that are significantly commoditised and [around] 60% of sales are reliant upon end markets that remain highly cyclical (e.g. construction, automotive, electronics and other industrial),” the bank said.

“Furthermore, the group’s exposure to regions whose manufacturing activity appears still to be slowing is significant. 43% of sales are made in Europe and a further 26%(mainly PVC & Nylon) to Asia,” it added.

($1 = €0.79)

By: Leigh Stringer
+44 208 652 3214

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