Clariant Earnings: EBITDA Ahead of Consensus and Attractive Lucas Meyer Cosmetics Acquisition

No-moat Clariant CLN reported third-quarter EBITDA before exceptional items of EUR 164 million, down 32% versus 2022 but above the Vara consensus of CHF 150 million. Against a backdrop of persistent weak demand for durable goods, the group managed to increase slightly group volumes compared with the second quarter. With this, the guidance for 2023 was confirmed. Clariant also announced that it has reached an agreement to acquire Lucas Meyer Cosmetics from International Flavors and Fragrances for a total consideration of USD 810 million, or CHF 720 million. The deal values the cosmetic ingredients business at 16.3 EBITDA, which we believe is an attractive valuation given that the majority of the portfolio consists of cosmetic active ingredients—the highest-value category of personal care ingredients. We believe the deal is positive for Clariant’s economic moat, but we don’t expect to change our moat rating given the acquisition’s limited scale (its 2022 sales represented less than 2% of Clariant’s group sales). We believe the deal is neutral to our unchanged CHF 22 fair value estimate. At current levels, the shares look undervalued.

The absorbents and additives business unit saw a 20% decline in volumes in the quarter, driven primarily by weak demand in additives end markets. The care chemicals business unit saw a more muted decline of 2% in volumes, but the price decline accelerated to negative 6% compared with negative 2% in the second quarter, with the unit impacted by index-based pricing. On the flip side, the catalysis sector, excluding Sunliquid, made steady progress, registering a 4% increase in volume. Clariant anticipates a reduction in inflationary pressures but doesn’t expect a full recovery in the last quarter of 2023, given lingering uncertainties and macroeconomic risks. Nevertheless, the company’s cost-cutting efforts, yielding savings of CHF 14 million, are keeping it on track to reach its CHF 170 million savings target by 2025.