Paint and coating prices to drive strong AkzoNobel Q3 - analyst

05 October 2012 12:14  [Source: ICIS news]

LONDON (ICIS)--Strong paints and coatings pricing is likely to contribute to robust third quarter results for AkzoNobel, a trend likely to continue into 2013, analyst Bernstein Research said on Friday.

According to Bernstein, the Dutch coatings and specialty chemicals maker is likely to post earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 10% in its third-quarter results, expected on 18 October, and 14% EBITDA growth for 2013, driven in both cases by strong prices for AkzoNobel’s performance coatings division.

The firm has rated the company an “outperform”, meaning that it believes the firm's stock may exhibit stronger growth than the general European petrochemicals market over the next six months.

Bernstein’s bullish outlook on the sector comes in spite of weakening sales volumes and softening prices in the US and European paints and coatings markets, which have been broadly flat in recent months, leading Bernstein to slightly reduce its third-quarter forecast for AkzoNobel from earlier estimates.

The sector has remained resilient despite the recent sluggish market, Bernstein said, with 8% year on year growth in the US market as of August, and 4% year-on-year growth in the EU in July.

Raw material costs are also likely to have been a factor for Akzo Nobel’s paints and coatings operations in the third quarter. Bernstein estimates that price inflation for raw materials used in the company’s paints and coatings products currently stands at 4%, which contributed to the slight cut in its third quarter forecast.

Those costs are expected to fall in 2013 due in large part to lower costs for titanium oxide (Ti02), which could be a “big positive” for AkzoNobel’s 2013 performance, according to Bernstein. The material is a key ingredient in many of the company’s decorative paints products, and is the cause of the majority of the current price inflation, Bernstein said.

“In August in the US, [paints and coatings] prices stabilised sequentially, ensuring year-on-year pricing remained strong, while costs continues to decline. These trends continue to give us confidence in AkzoNobel’s margins as we look forward to Q3 2012 and 2013 earnings,” Bernstein Research said.

Bernstein has set a pricing target of €53 per share for AkzoNobel stock. The stock was trading for €45.17 per share at 11:15 GMT.

“We believe AkzoNobel is more defensive than first appears with a great deal of upside potential,” Bernstein said.

By: Tom Brown
+44 208 652 3214

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