Company Reports

France-based Arkema was spun out of Total in 2006 as a low-margin, commodity chemical company focused on acrylics and vinyls. Since then, the company has made significant progress toward becoming a specialty materials company. Still, the transformation is not complete, with the company planning to divest its most cyclical business, commodity fluorogases for refrigeration and cooling, and to continue to build its presence in the fragmented adhesives and sealants market with further acquisitions over the 2024-28 strategic cycle. During this period, the company's specialty materials business should see strong demand on the back of secular growth themes such as electric mobility, efficient buildings, and sustainable lifestyle.

We raise our fair value estimate for Arkema by 5% to EUR 110 following a transfer of coverage and a fresh look at the business, including an update of our expectations for the strategic cycle 2024-28. During this time, Arkema should see strong demand for its specialty materials coming from key submarkets, such as electric mobility, efficient buildings, and sustainable lifestyle. The stock has underperformed recently as the company’s bottom line has been impacted by widespread customer destocking and weak demand in 2023. Although management expects volumes to remain weak in the first part of 2024, the profit decline should be short-lived, with little long-term impact. At current levels, we believe the share price offers an upside of around 15% for patient investors.

France-based Arkema was spun out of Total in 2006 as a low-margin, commodity chemical company focused on acrylics and vinyls. Since then, the company has made significant progress toward becoming a specialty materials company. Still, the transformation is not complete, with the company planning to divest its most cyclical business, commodity fluorogases for refrigeration and cooling, and to continue to build its presence in the fragmented adhesives and sealants market with further acquisitions over the 2024-28 strategic cycle. During this period, the company's specialty materials business should see strong demand on the back of secular growth themes such as electric mobility, efficient buildings, and sustainable lifestyle.

No-moat Arkema delivered 2023 EBITDA of EUR 1.5 billion, in line with company-compiled consensus and our estimates. This represents a 29% decline from a high 2022 comparison base, driven by soft demand across most end markets and customer destocking measures. For 2024, management targets EBITDA of EUR 1.5 billion to EUR 1.7 billion—a broad range given uncertainty over the timing of demand recovery, which is expected to remain soft in the first quarter. We don’t expect to make a material change to our EUR 105 fair value estimate after incorporating these results and view shares as fairly valued at current levels.

France-based Arkema was spun out of Total in 2006 as a low-margin commodity chemical company focused on acrylics and vinyls. Over the past 15 years, Arkema has made significant progress toward becoming a speciality materials company through portfolio adjustments, with the divestment of the vinyls business in 2012 a key turning point. The company expects to complete its transformation by 2024 with continued acquisitions in adhesives and sealants while the most cyclical business (commodity fluorogases for refrigeration and cooling) is slated for divestment. We are constructive on the final destination and believe the company will have a more moatworthy business portfolio at completion.

No-moat Arkema reported third-quarter EBITDA of EUR 386 million, down 22% from its 2022 high comparison base but still 2.4% above the company-compiled consensus. The results were mainly impacted by lower prices across all segments and lower volumes in Europe and United States in most end markets. However, margins were resilient at 16.6% versus 16.7% in the third quarter of 2022, benefiting from cost-control initiatives. Despite this, the quarter continued weak demand, guidance for 2023 EBITDA of EUR 1.5 billion was maintained supported by cost-saving actions and management’s expectation of good momentum for the fourth quarter. We maintain our EUR 105 fair value estimate. Shares are up around 4% intraday at the time of writing. At current levels, the shares look undervalued.

No-moat Arkema reported second-quarter EBITDA of EUR 417 million, showing a 41% decline compared with the high base of second-quarter 2022. Nevertheless, it still managed to surpass the company's compiled consensus by 5%. The results were largely influenced by weakened demand and continuous destocking across all segments, with volumes dropping by 15% and average prices decreasing by 6.6% in most businesses, except for adhesive solutions. Despite these challenges, Arkema reconfirmed its guidance for 2023, aiming for an EBITDA ranging from EUR 1.5 billion to EUR 1.6 billion.

No-moat Arkema reported first-quarter EBITDA of EUR 367 million, down 41% compared with the exceptionally high comparison base of 2022 in upstream acrylics and PVDF, but around 9% above the company’s compiled consensus. Arkema confirmed its guidance for the year and aims to achieve EBITDA of around EUR 1.5 billion to EUR 1.6 billion and maintain a high EBITDA to cash conversion rate of over 40%. Shares rose 4% intraday. We don’t expect to make a material change to our EUR 105 fair value estimate. At current levels, the shares are trading in 4-star territory.

No-moat Arkema reported fourth-quarter EBITDA of EUR 291 million, broadly in line with company-compiled consensus and guidance, but down 30% over the high comparison base of 2021. Organic sales grew by 13.6%, reflecting price increases, but lower volumes, mainly hit by weaker demand in all segments, especially for coating solutions and high levels of destocking in Europe. For 2023, the group expects to benefit from its expansion projects in Asia and targets EBITDA of EUR 1.5 billion to EUR 1.6 billion, generally aligned with our estimate and company-compiled consensus. We don’t expect to make a material change to our EUR 105 fair value estimate. At current levels, shares are trading in 4-star territory.

No-moat Arkema reported third-quarter EBITDA of EUR 495 million, up 4% over 2021 and slightly above the company-compiled consensus. Guidance for 2022 EBITDA of EUR 2.1 billion was maintained despite some destocking expected in the fourth quarter with the economy slowing, particularly in Europe. We don’t expect to make a material change to our EUR 105 fair value estimate. At current levels, the shares look undervalued.

France-based Arkema was spun out of Total in 2006 as a low-margin commodity chemical company focused on acrylics and vinyls. Over the past 15 years, Arkema has made significant progress toward becoming a speciality materials company through portfolio adjustments, with the divestment of the vinyls business in 2012 a key turning point. The company expects to complete the transformation by 2024 with continued acquisitions in adhesives and sealants while the most cyclical business (commodity fluorogases for refrigeration and cooling) is slated for divestment. We are constructive on the final destination and believe the company will have a more moatworthy business portfolio at completion.

No-moat Arkema reported second-quarter EBITDA of EUR 705 million, 47.5% above 2021 and 16% above the company compiled consensus. With very strong year-to-date performance, Arkema upgraded 2022 EBITDA guidance to around EUR 2.1 billion (17%-22% growth at constant scope), which is about 5% above consensus and well above our estimate. Despite the strong results, shares were trading flat intraday, worst of the group. The market likely expects a major slowdown (similar to our expectation), but this is now pushing more into 2023 than the second half of 2022. Consequently, we expect to raise our 2022 estimates but will reduce our 2023 forecast, likely resulting in minimal change to our EUR 105 fair value estimate. At current levels, the 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.

No-moat Arkema reported first-quarter EBITDA of EUR 619 million, up 73% versus 2021 and 30% above the company-compiled consensus. Given the strong start, the company raised 2022 EBITDA guidance to slightly above 2021 for specialty materials and the group from comparable to 2021 for specialty materials. Shares rose 6% intraday. We expect to boost our near-term estimates slightly but don’t expect to make a material change to our EUR 105 fair value estimate. At current levels, the shares look fairly valued.

France-based Arkema was spun out of Total in 2006 as a low-margin commodity chemical company focused on acrylics and vinyls. Over the past 15 years, Arkema has made significant progress toward becoming a speciality materials company through portfolio adjustments, with the divestment of the vinyls business in 2012 a key turning point. The company expects to complete the transformation by 2024 with continued acquisitions in adhesives and sealants while the most cyclical business (commodity fluorogases for refrigeration and cooling) is slated for divestment. We are constructive on the final destination and believe the company will have a more moatworthy business portfolio at completion.

No-moat Arkema reported fourth-quarter EBITDA of EUR 417 million, up 44% over 2020 and ahead of the company-compiled consensus. 2022 guidance was broadly in line with our estimate and consensus. Overall, it was another strong quarter for Arkema but overshadowed by the geopolitical news of the Russian invasion of Ukraine. Shares were down around 6% intraday, similar to its more cyclical industrial-focused peers. We don’t expect to make a material change to our EUR 95 fair value estimate.

No-moat Arkema reported third-quarter EBITDA of EUR 474 million, up 54% versus 2020 and beating the company-compiled consensus by 13%. Strong performance led to another guidance upgrade. Arkema is now calling for 2021 EBITDA of EUR 1.6 billion (previously EUR 1.4 billion) based on at least 40% EBITDA growth in specialty materials (previously 30%). Shares are reacting positively, up 4% intraday. Our 2021 EBITDA estimate now looks light. We expect to boost our near-term estimates, which will likely modestly increase our EUR 95 fair value estimate.

No-moat Arkema announced an agreement to acquire Ashland’s performance adhesives business for $1.65 billion (EUR 1.4 billion). At first glance, we see this acquisition as roughly value-neutral and don’t expect to make a material change to our EUR 95 fair value estimate. However, we are constructive on the strategic aspects of the acquisition as we think it is positive for moat and stability of Arkema’s cash flow stream, which ultimately may command a higher valuation multiple in the future. Arkema shares closed up 4% while most of its European chemicals peer group traded down on the day. At current levels, the shares look fairly valued.

No-moat Arkema reported second-quarter EBITDA of EUR 478 million, up 67% versus 2020 and 21% ahead of the Visible Alpha consensus. Shares traded up 3% on the day. Given ongoing strong demand, Arkema raised guidance for the second time this year. The company now expects 30% growth in specialty materials EBITDA versus 20% previously. This should deliver around EUR 1.4 billion EBITDA for the group. We expect to raise our near-term estimates but don’t expect to make a material change to our EUR 95 fair value estimate. At current levels, the shares look fairly valued.

No-moat Arkema reported first-quarter EBITDA of EUR 306 million, up 19% over 2020 and about 7% above company-compiled consensus. The rebound in adhesives was particularly strong, but all segments contributed to the beat. Given the robust start, Arkema lifted its 2021 guidance to 20% EBITDA growth in specialty materials versus 10% growth previously. We expect to raise our near-term estimates slightly but don’t expect this to have a material impact on our EUR 95 fair value estimate. At current levels, the shares look fairly valued.