Lanxess: Trimming Fair Value to EUR 65 From EUR 69 on Profit Warning; Shares Still Undervalued

No-moat Lanxess LXS announced a profit warning ahead of second-quarter results. The company expects second-quarter EBITDA to be around EUR 100 million, half the current Vara consensus of EUR 200 million. Furthermore, Lanxess also cut 2023 guidance. The company now expects 2023 EBITDA to be EUR 600 million–EUR 650 million compared with EUR 850 million–EUR 950 million previously. Generally weak demand, particularly in construction, electronics, and consumer products combined with customer destocking is driving the poor performance. Lanxess previously expected a pick-up in demand in the second half, but so far in June a recovery is not evident so the company is walking back from that notion.

We have been bearish on 2023 for some time with estimates substantially below the Street. However, with this latest update, even our 2023 EBITDA estimate (EUR 696 million) looks aggressive. Consequently, we have now trimmed our 2023 EBITDA estimate to EUR 612 million, but expect performance to begin recovering in 2024. We reduce our fair value estimate to EUR 65 from EUR 69. Shares continue to look undervalued.