Volumes and restructuring can drive AkzoNobel growth - analysts

26 February 2013 11:22  [Source: ICIS news]

LONDON (ICIS)--Volume growth should be the strongest driver of earnings growth at AkzoNobel through 2015, although restructuring will play a part, UK based analysts at Bernstein Research said on Tuesday.

The Netherlands-headquartered coatings and chemicals maker’s updated strategy will deliver stronger-than-expected returns, as AkzoNobel CEO Ton Buchner strives to run the company better, the analysts suggested.

AkzoNobel is not generating sufficient cash flow; not covering its cost of capital; and not performing as well as it peers, Buchner had said.

“Their new financial targets are the right ones to address these challenges,” Bernstein said.

The targets were difficult to interpret immediately following the strategy update and AkzoNobel shares underperformed. Targets to consensus expectations were at first unclear, it added.

The earnings component of the metrics now include “incidentals” such as restructuring charges and gains which are often excluded when evaluating performance.

“With a better understanding of the targets, we expect earnings growth from a combination of restructuring and pricing power. A volume recovery creates very large upside potential," Bernstein added.

“Restructuring, especially in the European decorative paints business, will be a key source of earnings growth. We expect it to contribute nearly €600m ($789m) EBIT [earnings before interest and tax] per annum from 2015.”

There is a large performance gap between AkzoNobel and its peers, the analysts added. AkzoNobel’s selling, general & administrative (SG&A) charges to sales ratio is about 600 basis points higher than PPG’s, it said.

Bernstein maintained its 'Outperform' rating on AkzoNobel, raised 2015 earnings estimates by 8% and increased its target price per share to €65 from €63 ($83).

($1 = €0.76) 

By: Nigel Davis
+44 20 8652 3214

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