Clariant: Issues Profit Warning Due to Weak Demand From China and Destocking

No-moat Clariant CLN announced that it expects second-quarter preliminary results to be below the Vara consensus and also downgraded 2023 guidance. Clariant is suffering from macroeconomic challenges due primarily to weak demand from China and a prolonged customer destocking cycle, trends that are hurting the sector. As a result, Clariant expects second-quarter EBITDA to be CHF 155 million-CHF 165 million, below the Vara consensus of CHF 173 million. Furthermore, the company reduced its 2023 guidance. It now expects 2023 sales to be CHF 4.55 billion-CHF 4.65 billion (previously around CHF 5 billion) and EBITDA to be CHF 650 million-CHF 700 million—which equates to an EBITDA margin of 14.3%-15.1% versus previous guidance for the EBITDA margin to be slightly ahead of the 2022 level of 15.6%. The care chemicals and additives business is the most negatively affected while the catalysis business, excluding Sunliquid, continues to improve. Clariant is evaluating strategic options for Sunliquid with an update to the market expected by the end of 2023. Counterintuitively, the shares are rallying intraday, up nearly 5% at the time of writing. We surmise the market was anticipating a sharper cut to guidance given the much more dire profit warnings we have seen recently from peers. We expect to trim our near-term estimates but don’t expect to make a material change to our CHF 22 fair value estimate. At current levels, the shares look undervalued.