AkzoNobel Earnings: Solid EBITDA Delivery Clouded by Ongoing Australian Legal Case

Narrow-moat AkzoNobel delivered first-quarter 2024 adjusted EBITDA of EUR 363 million, 19% higher than 2023 and ahead of the Visible Alpha consensus of EUR 348 million. This was primarily attributed to raw material tailwinds, with the group posting a year-over-year EBITDA margin improvement of 230 basis points to 13.8%. The company confirmed its full-year EBITDA guidance range of EUR 1.50 billion-EUR 1.65 billion. Despite what we view as solid results, the share price was down around 5% intraday. We believe this might be the result of a company disclosure related to a liability claim brought against AkzoNobel in Australia for the alleged degradation of the coating on part of the pipework in a large liquified natural gas project in Darwin, Australia. The associated remediation costs are being claimed under the Australian Consumer Law. Also mentioned in the annual report, the company made this disclosure again after a court-ordered mediation, which was held in February 2024, but did not result in a resolution with a trial set to start on June 17. The company did not disclose the amount for the alleged claims, but some figures mentioned in the analyst call are as much as AUD 2.5 billion or EUR 1.5 billion. AkzoNobel denies liability and claims it has a strong legal case and substantial insurance coverage if any liability is proven. Still, the situation is likely to remain uncertain for a prolonged period as the court judgment is not expected before the end of 2025. Beyond this legal issue, we are encouraged by the company’s good progress on profitability recovery, resilient pricing, and positive volume development, so we confirm our EUR 88 fair value estimate. The shares currently appear undervalued.