AkzoNobel's Fourth-Quarter EBIT Was Lower Than Expected; Shares Remain Undervalued

Narrow-moat AkzoNobel reported fourth-quarter EBIT of EUR 126 million, a year-on-year decline of 40% that missed the Vara consensus estimate by EUR 80 million and previous company guidance of EUR 150 million. This result was mainly due to the negative impact of volume declines on both of it segments: decorative paintings and performance coatings. The company's outlook for 2023 projects an adjusted EBITDA range of EUR 1.2 billion to EUR 1.5 billion, which is broadly in line with our forecast but falls below consensus expectations. This change is mainly due to management's lower projections for volume, in the range of negative 1% to negative 5%, which is below our 3% expectation. We might trim our 2023 volume estimates but don’t expect them to have a material impact on our EUR 100 fair value estimate. Despite the disappointing quarter and the drop in guidance, shares are up around 3% at the time of writing. We surmise the market was anticipating an even worse quarter and, in general, European chemical stocks are up on Feb. 8. At current levels, the shares still look undervalued.