Bank upgrades Dutch AkzoNobel’s rating to ‘Neutral’

24 January 2013 11:07  [Source: ICIS news]

LONDON (ICIS)--JP Morgan Cazenove has upgraded Netherlands-based paints and coatings producer AkzoNobel to its “Neutral” rating, from “Underweight”, on easing raw material costs and an improving demand outlook in Asia, the investment bank said on Thursday.

The bank also increased AkzoNobel’s share price target to €50.00 from €36.00.

“Signs from China indicate the property market is coming back to life, which reduces one of our chief concerns about future earnings. Furthermore, we now forecast a 3% [year-on-year] reduction in raw material and energy input costs as we expect TiO2 [titanium dioxide] prices to soften further and other inputs to remain benign,” JP Morgan Cazenove said.

The bank also raised AkzoNobel’s estimated earnings per share (EPS) for 2013 and 2014 by 16% and 19% respectively, to reflect lower fixed costs in the group’s European Decorative Paints business.

Following AkzoNobel’s announcement in December to sell its North American Decorative Paints operations to US company PPG Industries, JP Morgan Cazenove believes it more likely that CEO Ton Buchner will concentrate on the costs in its decorative paints activities in Europe.

“Our benchmarking points to potential for Akzo to shrink European Deco fixed costs by 15% by 2014, adding €150m [$200m] incremental EBIT [earnings before interest and taxes],” the bank said.

JP Morgan Cazenove added that growth investment in Europe is more likely to add long-term value to AkzoNobel’s business.

“Were Akzo to direct some of its $875m North American Deco cash proceeds towards acquisitions, we would prefer it to strengthen in European Deco over growth markets, where assets are likely to be highly priced,” it said.

The bank added that a recovery in European paint demand could add 20% to the group’s EPS.

“We estimate Akzo’s paint sales volumes are around 15% below their peak, and calculate that recovery to this peak level would add about €250m to Deco EBITDA [earnings before interest, tax, depreciation and amortisation], and 20% to our group EPS (2014) forecast.”

At 10:40 GMT, AkzoNobel’s shares were trading at €51.75, up 0.58% from the previous close, on the Euronext Amsterdam.

($1 = €0.75)

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

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