UBS downgrades UK’s Elementis, but raises target price

11 March 2013 11:56  [Source: ICIS news]

LONDON (ICIS)--UBS on Monday downgraded UK-based Elementis’ stock to “Neutral” from “Buy”, as it cut the group's 2013 earnings per share (EPS) by 1% on changes to its employee benefits scheme, which management estimates will have negative impact on profit before tax.

However, the Swiss-based investment bank raised the specialty chemicals producer's 12-month target price to $3.97 (€3.06) from $3.63.

It also raised Elementis’ expected underlying EPS for 2013-2015 by 3-7%, following the group’s full-year earnings and the acquisition of US-based coatings additives firm Hi-Mar Specialty chemicals.

“Elementis’ [full-year] results demonstrated the resilience of the business model, and [management] confidence in the cash generative ability of the business was highlighted by [a special dividend] payout ($22m), despite the $33m Hi-Mar acquisition this year.

“While we have raised our Specialities and Surfactants [business units] forecasts, we cut 2013 EPS on IAS19 [International Accounting Standard Nineteen – an accounting rule concerning employee benefits] changes, which [management] estimates will have a -$7.8m impact on [profit before tax],” UBS said.

In February, Elementis reported its net profit fell by 14% year on year to $107.1m in 2012, weighed by one-off gains in 2011, while its sales dipped by 0.5% year on year to $757.0m last year. The firm’s operating profit rose by 5.0% to $143.9m in the same period.

There were no exceptional items reported in 2012, while the company posted a one-time gain of $34.5m from the European Commission in 2011, after it repealed its decision to impose fines on Elementis.

At the time group CEO David Dutro said the company’s trading in 2013 had started on a solid footing, “although economic uncertainties are still in evidence”.

Last month, the company announced it had acquired the assets of Hi-Mar Specialty chemicals for $33m, through its wholly-owned subsidiary Elementis Specialties.

Hi-Mar is a supplier of defoamers to the coatings, construction and oilfield drilling industries, with manufacturing and technical facilities based in Milwaukee, Wisconsin.

($1 = €0.77)

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

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