Arkema Earnings: EBITDA Down but Above Consensus; Acquisition of PI Advanced Materials Positive for Moat

No-moat Arkema AKE 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.

During the quarter, the group announced its intention to acquire a controlling stake in PI Advanced Materials, a global leader in ultra-high-performance polyimide films based in South Korea. At 20 times EBITDA, the acquisition price looks high, but after our estimated achievable synergies of 7.5% sales (versus Arkema estimate of 15%), the multiple drops to around 14 times, which we think is reasonable for a business of this quality. As polyimide is at the top of the performance spectrum in high-performance plastics, we think this acquisition is positive for Arkema’s moat. The market reacted positively to the news, with a 2% share price increase intraday. We anticipate that the acquisition will have minimal impact on our estimates, resulting in little change to our EUR 105 fair value estimate. Consequently, at current levels, the shares appear undervalued.