UK chem firms' share ratings cut on valuation grounds - analyst

11 July 2012 12:40  [Source: ICIS news]

LONDON (ICIS)--UBS has downgraded the share rating of specialty chemicals producer Croda and fellow UK-based catalyst maker Johnson Matthey to “neutral” from “buy”, the investment bank said on Wednesday.

The two UK firms have been downgraded entirely on valuation grounds with their stocks having outperformed over the last 12 months.

“Other than valuation and stock outperformance we find nothing to criticise with Croda and very little with JM [Johnson Matthey],” UBS said.

The investment bank said that Croda remains a core holding, “in our view, and offers one of the most robust, if not the most robust, setup of any chemical company we follow.

“The key here is that almost 100% of Croda’s production is tailor-made and batched based rather than 24/7 continuous production and that it sells its products directly rather than selling via distributors, thereby capturing the distributor margin and gaining the ability to build long-term relationships with its customers,” UBS added.

The investment bank did revise down Johnson Matthey’s estimated earnings per share for fiscal 2013 and 2014 by 4% on the basis the group’s Precious Metal Products (PMP) segment will be hit by an expected fall in precious metal prices.

“With double digit growth projected for the catalyst business as well as Fine Chemicals, this [earnings] compression is entirely due to PMP, with reduced metal prices as well as less high margin autocatalyst scrap arriving in JM’s refining operations,” UBS said.

UBS cut Johnson Matthey’s share price target to £23.50 (€29.70) from £27, although Croda’s was lifted to £23 from £22.80.

At 11:19 GMT, Croda’s shares were trading at £22.55 on the London Stock Exchange, down 1.53% from the previous close, while Johnson Matthey’s shares at the same time were trading at £21.06, down 2.81% from the previous close.

In related news, UBS has upgraded its share rating for Germany-based chemicals group LANXESS from “neutral” to “buy”, after the group’s earnings proved resilient despite a volatile market.

(€1 = £0.79)

By: Franco Capaldo
+44 (0)20 8652 3214

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