Company Reports

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.

Narrow-moat AkzoNobel reported full-year 2023 adjusted EBITDA of EUR 1.429 billion, slightly below the EUR 1.436 billion Visible Alpha consensus but significantly ahead of the EUR 1.157 billion reported last year. The year-on-year improvement was primarily driven by raw material price deflation. Encouragingly, the volume development turned positive in the fourth quarter across all business areas. For 2024, management expects adjusted EBITDA in the range of EUR 1.5 billion to EUR 1.65 billion and low-single-digit volume growth. The firm also issued its first midterm guidance under CEO Gregoire Poux-Guillaume, targeting low-single-digit volume growth on average through 2027, adjusted EBITDA margin of above 16% by 2026 or 2027 (including the benefits of the industrial transformation program announced last year), and a leverage ratio of 2 times to be reached in the same timeframe. With both the 2024 and the midterm guidance aligned with our forecast, we confirm our EUR 88 fair value estimate. At current levels, we believe shares remain undervalued, offering an upside of around 20% for patient investors.

Narrow-moat AkzoNobel reported third-quarter 2023 adjusted EBITDA of EUR 414 million, broadly in line with the Visible Alpha consensus of EUR 412 million. Management narrowed down the full-year 2023 adjusted EBITDA guidance to a target of EUR 1.45 billion, from a range of EUR 1.4 billion to EUR 1.55 billion previously. This is slightly below the midpoint of the range and the EUR 1.5 billion in our forecast, but we expect the short-term negative impact to be largely offset by a time value of money adjustment in our model. We confirm our EUR 88 fair value estimate. The market reacted negatively to what can be interpreted as a guidance downgrade, sending shares around 4% lower during the day and making the discount to our fair value even more attractive, at around 35%.

We reduce our fair value estimate for AkzoNobel by 12% to EUR 88 following a transfer of coverage and a fresh look at the business, including a slightly more moderate long-term outlook. We believe shares remain attractive even after this fair value cut, offering an upside of around 20% at current levels.

AkzoNobel is the third-largest company in the paints and coatings industry, behind Sherwin-Williams and PPG Industries. The company's operations are divided into two segments: decorative paints and performance coatings. Decorative paints are applied to external and internal buildings for cosmetic appeal and are essentially consumer products where brands are important. By contrast, performance coatings are primarily functional products used in a variety of industrial end markets, including automotive, aerospace, oil and gas, marine, and packaging.

Narrow-moat AkzoNobel reported second-quarter EBIT of EUR 311 million, up 25% versus 2022 and in line with Vara consensus. The robust pricing environment for both segments coupled with the initial benefits of raw materials deflation and lower restructuring costs for performance coatings provided significant impetus for EBIT growth, offsetting the challenges posed by lower volumes and currency headwinds. In light of these developments, management raised the guidance for 2023 adjusted EBITDA, setting a new range of EUR 1.40 billion to EUR 1.55 billion, surpassing the previous estimate of EUR 1.2 billion to EUR 1.5 billion. This positive development has elicited a favorable market response, as evidenced by the 3% intraday rise in the share price, well ahead of industry peers. We don't anticipate any changes to our EUR 100 fair value estimate. The shares currently appear undervalued.

Narrow-moat AkzoNobel reported first-quarter EBIT of EUR 218 million, down 5% over 2022 but ahead of the Vara consensus. The decline was mainly attributed to raw material inflation and negative mix and volume, which offset pricing measures. However, the market reacted positively to the results, as the stock showed a small increase in comparison with peers trading in negative territory for the day. AkzoNobel management remains optimistic about the outlook for the year, and as such we don't anticipate any changes to our EUR 100 fair value estimate. The shares currently appear 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.

Narrow-moat AkzoNobel reported third-quarter EBIT of EUR 184 million, down 24% over the prior-year period. EBIT was EUR 201 million, excluding the impact of hyperinflation accounting, in line with the prequarter profit warning and Vara consensus. Given continued macroeconomic deterioration, AkzoNobel has dropped its 2023 targets, notably the ambition to reach EBITDA of EUR 2 billion. This is not a surprise. We are currently forecasting 2023 EBITDA of only EUR 1.3 billion while consensus is calling for EUR 1.5 billion. Consequently, shares are only down modestly intraday, around 3%. We don’t expect to make a material change to our EUR 100 fair value estimate. At current levels, the shares look undervalued.

AkzoNobel is a pure-play paints and coatings company. It is the third-largest company in the industry, behind Sherwin-Williams and PPG Industries. The company divides itself into decorative paints and performance coatings. Decorative paints are applied to external and internal buildings for cosmetic appeal and are essentially consumer products where brands are important. In contrast, performance coatings are primarily functional products used in a wide variety of industrial end markets such as automotive, aerospace, oil and gas, marine, and packaging.

Narrow-moat AkzoNobel announced third-quarter EBIT is expected to be EUR 195 million-EUR 215 million, implying a 15% drop over 2022 using the midpoint and a significant miss versus current Vara consensus of EUR 290 million. Despite the big consensus miss, shares are only down 1% intraday, which we think clearly indicates that true market consensus is much more bearish than current sell-side consensus. We have been consistently bearish versus sell-side consensus and management guidance. Nevertheless, 2022 is now looking worse than our previous conservative expectations. We have taken down our near-term estimates modestly, which only reduces our fair value estimate to EUR 100 from EUR 102. We continue to view the shares as materially undervalued.

AkzoNobel is a pure-play paints and coatings company. It is the third-largest company in the industry, behind Sherwin-Williams and PPG Industries. The company divides itself into decorative paints and performance coatings. Decorative paints are applied to external and internal buildings for cosmetic appeal and are essentially consumer products where brands are important. In contrast, performance coatings are primarily functional products used in a wide variety of industrial end markets such as automotive, aerospace, oil and gas, marine, and packaging.

Narrow-moat AkzoNobel reported second-quarter EBIT of EUR 249 million, down 26% versus 2021 and slightly below Vara consensus despite the profit warning announced in June (see our note "And So It Begins, AkzoNobel Flags Weaker-Than-Expected Second Quarter"). Shares were down 1% intraday, below most of the group. AkzoNobel announced further cost savings of EUR 200 million in support of its 2023 EBITDA target of EUR 2 billion given increasing macroeconomic uncertainties. As we have asserted previously, we have doubts about it achieving 2023 targets given the increasingly gloomy macroeconomic picture. Our 2023 EBITDA estimate is well below guidance and consensus, which is already a skeptical EUR 1.7 billion. Nevertheless, we are bullish versus the market as shares are now trading in 5-star territory. We don’t expect to make a material change to our EUR 107 fair value estimate.

Narrow-moat AkzoNobel announced second-quarter EBIT is expected to be EUR 90 million less than “expectations,” with expectations referring to consensus numbers around the beginning of the quarter. Using current Vara consensus, this would imply EBIT of about EUR 250 million or a 25% decline versus 2021. As we said in our May 10 note, “European Chemicals Outlook Dims on Rising Input Costs and Interest Rates, but We See Opportunities,” we think company guidance in the sector is generally too high. Hence, we expect cuts so this does not surprise us. Our 2022 EBIT forecast for AkzoNobel is already 15% below consensus, so we don’t expect to make a material change to our EUR 107 fair value estimate. Despite the profit warning and our bearish outlook versus consensus, we think shares look undervalued.

The European chemicals sector enjoyed strong investment returns once central banks turned on the liquidity taps to combat the coronavirus pandemic in March 2020. At the start of 2022, the outlook remained bright as demand remained robust while inflation, particularly for raw materials, was expected to peak in the first half of 2022. However, we think the Russia-Ukraine war has changed the equation, leading to a more ominous picture in the back half of the year given our expectations for sustained raw material inflation and rising interest rates. Considering guidance provided by companies in the sector does not account for the impact of the Russia-Ukraine war, we think sector guidance is generally too optimistic and thus, cuts may be necessary in the second half of 2022. While our 2022 outlook for the sector has dimmed, we see opportunities at current prices. For the industrial chemical companies, we prefer Lanxess given its compelling valuation (0.5 times price/fair value estimate) and dual catalysts (business transformation, lithium project) that should create value regardless of the economic environment. For the consumer chemical companies, we prefer Chr. Hansen given its relatively attractive valuation versus peers, wide moat rating, and leading organic growth outlook.

Narrow-moat AkzoNobel reported first-quarter EBIT of EUR 230 million, down 25% over 2021 but ahead of the Vara consensus. However, it was a low quality beat, in our opinion, as the positive surprise was generated in the other segment. The core paints and coatings segments were more or less in-line. Regardless, the market is enthused with the results, sending the shares up 6.5% on the day. We think this is due to continued price increases, an impressive 17% increase in the quarter, which more than offset raw material inflation. We don’t expect to make a material change to our EUR 107 fair value estimate. At current levels, the shares look undervalued.

Narrow-moat AkzoNobel reported fourth-quarter EBIT of EUR 209 million, down 29% over 2020 but broadly in line with Vara consensus. Raw material Inflation (less than 30% in the quarter) and supply chain issues continue to be a major drag but AkzoNobel is executing well with continued price increases, including 12.5% in the fourth quarter and 14% in December. We don’t expect to make a material change to our EUR 107 fair value estimate. At current levels, the shares look undervalued.

Narrow-moat AkzoNobel reported third-quarter EBIT of EUR 325 million, down 26% versus 2020 but largely in line with Vara consensus. Shares are trading flat intraday. Raw material inflation drove the decline in profits as underlying demand remained strong. We’ve lowered our near-term estimates due to the raw materials headwind. However, we are raising our fair value estimate to EUR 107 from EUR 99 as we expect price increases to offset inflation over time and we now expect lower corporate costs in future. At current levels, the shares look undervalued.

AkzoNobel is a pure-play paints and coatings company. It is the third-largest company in the industry, behind Sherwin-Williams and PPG Industries. The company divides itself into decorative paints and performance coatings. Decorative paints are applied to external and internal buildings for cosmetic appeal and are essentially consumer products where brands are important. In contrast, performance coatings are primarily functional products used in a wide variety of industrial end markets such as automotive, aerospace, oil and gas, marine, and packaging.

Narrow-moat AkzoNobel reported second-quarter EBIT of EUR 335 million, up 41% over 2020 but missing the Visible Alpha consensus. Profits were negatively impacted by sharply rising raw material inflation, leading to margins below consensus. For the full year, we were already below consensus and don’t expect to make any material changes to our forecast or EUR 99 fair value estimate based on second-quarter results. At current levels, the shares look fairly valued.