AkzoNobel’s specialty chems show strong pricing power – analyst

17 July 2012 10:51  [Source: ICIS news]

AkzoNobel headquartersLONDON (ICIS)--AkzoNobel’s Specialty Chemicals segment showed strong pricing power in the second quarter of 2012 despite weak volume growth, global analyst Bernstein Research said on Tuesday.

According to Bernstein, AkzoNobel’s Specialty Chemicals segment's second-quarter prices could be up 3% year on year, above its current estimates of 1% growth.

Bernstein said the segment, which generated about 45% of the group's 2011 earnings, before interest, tax, depreciation and amortisation (EBITDA) at 26% underlying return on invested capital (ROIC), deserves more investor attention.

Netherlands-based AkzoNobel is made up of three segments – Decorative Paints, Performance Coatings and Specialty Chemicals.

“The [Specialty Chemicals] segment is difficult to analyse due to the fragmented set of products and geographies,” the analyst said.

“We believe that this lack of visibility leads investors to discount Specialty Chemicals' performance despite: The segment having the highest ROIC (26% for 2011 vs Group ROIC of 14%, excluding intangibles) and margins (17% for 2011 vs Group EBITDA margin of 12%) amongst AkzoNobel's three segments,” it added.

Bernstein identified AkzoNobel’s Surface Chemistry business is the "jewel" in its Specialty Chemicals segment.

“Our analysis revealed that the Surface Chemistry division has increased prices by 40% from 2007-11, which is consistent with the company's qualitative comments regarding the division's superior profitability,” the analyst said.

In the second quarter of 2012, Bernstein estimates prices in the Surface Chemistry division will have risen 1.6% year on year.

Bernstein announced on 4 July it expected AkzoNobel to deliver strong earnings growth in the second quarter and for the full year of 2012, largely on pricing strength. The analyst said strong pricing power, particularly in the paints and coatings industry, remains the key earnings driver for the company.

By: Franco Capaldo
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