Bank cuts French Arkema’s rating on soft end markets

05 March 2013 10:48  [Source: ICIS news]

LONDON (ICIS)--Investment bank JP Morgan Cazenove on Tuesday downgraded its rating for Arkema to “Neutral” from “Overweight”, on expectations the France-based specialty chemcials producer’s end markets are likely to remain soft.

“2013 may prove to be a down year for earnings. In our view, Arkema’s end markets are likely to remain soft with, for example, weakness in High Performance Materials (Performance Products) and ongoing delays in new oil and gas projects.,” the bank said.

“In addition, the comparison will be challenging given the absence of the significant currency gain and first time acquisition contribution seen in 2012,” it added.

JP Morgan Cazenove also lowered its target share price for Arkema to €72.00 ($93.51) from €75.00.

On 28 February, Arkema reported it had swung to a 2012 fourth-quarter net profit of €16m from a net loss of €463m in the same period a year before, supported by strong earnings in its industrial specialties unit on healthy market conditions in North America.

Sales in the three months ended 31 December rose 3.4% year on year to €1.45bn, while EBITDA (earnings before interest, tax, depreciation and amortisation) was up by 8.2% at €171m.

Over the full year of 2012, the company’s group share net profit swung to €220m, from a net loss of €19m a year earlier, while full-year sales were up 8.4% year on year at €6.40bn, reflecting the contribution of acquisitions. However, EBITDA in 2012 slipped by 3.7% to €996m, following “less favourable and more volatile economic environment than in 2011, not just in Europe but also in China,” CEO Thierry Le Henaff said.

Le Henaff added the group expects a strong performance in 2013 but remained cautious about the macroeconomic environment. He said weak demand observed in certain high performance materials end-markets at the end of 2012 has continued at the beginning of the year, however was confident of a gradual recovery of volumes during the first half of the year.

JP Morgan Cazenove said: “We cut our 2013 EBITDA forecast 5%, 2014 4%, leaving us –10% versus 2013 consensus of €1,049m, -11% versus 2014 consensus of €1,116m."

The bank added: “Our revised forecasts reflect the absence of the currency tail wind experienced in 2012 (which we estimate to have contributed €40-50m to EBITDA), a negative scope effect due to disposals, and modest short term organic growth prospects,” it added.

At 10:11 GMT, Arkema's shares on the Paris stock exchange were trading at €75.08, up 0.83% from the previous close.

On Monday, the company’s share dropped following a public announcement by Swiss-based industrial company Klesch Group that it was seeking €310m in compensation from Arkema for alleged “misrepresentations” in the sale of its vinyls business.

Klesch Group acquired the business unit – now known as Kem One – from Arkema in July 2012, but now claims that it has discovered significant gaps between the financial information presented by Arkema’s management during sale negotiations and the company’s current financial results.

The company is requesting compensation for the alleged financial shortfalls in Kem One’s balance sheet, and has not ruled out asking the arbitration court to annul the transaction.

Founder Gary Klesch, cited by news agency Bloomberg, said: “In the business plan they gave us, they were a lot of entry items of income that we should expect that never materialized,” adding that Klesch Group had already lost €100m six month’s into its investment.

Arkema has refuted the claims, stating that the negotiations were fully transparent.

The company said: “Arkema confirms that the Klesch group had access, in complete transparency and throughout the negotiations, to all the necessary information – as customary for this type of transaction – to enable it to assess the financial situation and the prospects of this activity, and performed the in-depth due diligence that it wanted.

“Arkema is all the more surprised given that throughout the eight months since the divestment, the Klesch group has raised no issue with Arkema. Arkema vigorously rejects these totally unfounded accusations, and is fully confident in its ability to demonstrate this,” it added.

($1 = €0.77)


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



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