AkzoNobel, Yara, Air Liquide top Europe 2013 chems picks – Bernstein

14 January 2013 11:48  [Source: ICIS news]

LONDON (ICIS)--Netherlands-based paintings and coatings company AkzoNobel, France-headquartered industrial gases major Air Liquide and Norwegian fertilizer producer Yara are the listed companies most likely to outperform the wider European chemicals market in 2013, analyst Bernstein Research said on Monday.

The US financial analyst added that the chemicals sector was one of the strongest-performing European markets in 2012, with the Dow Jones Stoxx 600 Chemicals (SX4P) index returning 29.5% during the year, compared to 14.4% for the broader Stoxx Europe 600 Price (SXXP) index.

“Despite the strong outperformance, we believe the current valuation only looks especially stretched for [Switzerland-based agrichemical firm] Syngenta,” the company said in an investor note.

Bernstein set a target price of €63 ($84) per share for AkzoNobel – a 24% increase on its share price during early Monday trading – based on stronger than expected pricing offsetting stabilising raw materials costs, volume recovery and “bold” restructuring steps being taken by CEO Tom Buchner.

The company has assigned a target price of Norwegian kroner 344 (€47.68, $62.32) per share for Yara, valuing the business at 7.6 times normalised earnings before interest, taxes, depreciation and amortisation (EBITDA).

Bernstein’s bullishness on the company is driven by the strength of its low cost gas ammonia production, coupled with its expansion into specialised fertilizers.

A tight supply-demand balance for ammonia is also likely to result in higher than expected nitrogen fertilizer prices, the company added.

Bernstein’s optimism for Yara does not extend to agri-focused companies Syngenta and K+S, which the company rated as ‘Underperform’ as a result of flat potash prices for K+S, and what it perceives as market overvaluation of Syngenta’s performance and earnings potential.

In the industrial gases market, Bernstein was more optimistic about the potential of Air Liquide than Germany-headquartered Linde, which it rated as ‘Market-Perform’, due to Air Liquide’s greater resilience to a weak European market, and a healthy project pipeline.

The analyst expressed surprise at the large stock re-ratings of German chemical major BASF and Syngenta, which it attributed to the strength of BASF’s management team and the diversification of its portfolio, helping to offset a decline in earnings.

It attributed Syngenta’s performance to investors opting to allocate capital to the agricultural sector, rather than in stocks more closely linked to the European economy.

Bernstein said: “We think global chemicals volume could surprise to the upside if emerging market recovery continues, even if the European economy remains weak.

“We forecast an average volume growth of 3.3% across our [European chemicals] coverage in 2013, slightly ahead of the forecast for global real GDP growth of 2.6%.”

($1 = €0.75, €1 = NKr7.37, $1 = NKr5.52)

By: Tom Brown
+44 208 652 3214

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