Morningstar | Arkema's 4Q and Modest 2019 Guidance in Line With Our Expectations; Shares Fairly Valued
No-moat Arkema reported fourth-quarter results that were broadly in line with consensus and our expectations. Fourth-quarter EBITDA increased 1.4% over 2017 while full-year EBITDA was up 6%, in line with guidance for a mid-single-digit increase. Guidance for 2019 is modest. EBITDA growth is expected to be flat for the year (despite a 3% boost from accounting changes) with a slight decline in the first quarter, given a high comparable. Currently, our forecast calls for a 4% EBITDA decline, which is basically in line with guidance after incorporating the accounting changes. Consequently, we don’t expect to materially change our forecast or EUR 88 fair value estimate. At current levels, the shares look fairly valued.The industrial specialties segment was the standout performer again and continues to exceed our expectations. Its fourth-quarter EBITDA was up 17% over 2017 while the other two segments were flat or down. We continue to see current performance in industrial specialties as a cyclical high that will begin receding in 2019. Performance has been primarily buoyed by polymethyl methacrylate and fluorogases. Similar to last quarter, Arkema noted that the PMMA market is starting to normalize. It appears that very high prices in fluorogases is the last leg that is holding up abnormally strong results in this segment. Indeed, prices in the segment increased 12% in the fourth quarter. The high prices are being driven by the regulated phaseout of certain fluorogas products. We think an inflection point is coming in fluorogases, where price increases will no longer be able to offset declining volume.
Arkema is engaged in the global chemical industry which is a processing industry based on the transformation in one or several stages of raw materials (oil derivatives, gas, minerals, natural products) into more or less complex chemical products, or into plastics obtained by polymerization. In addition, Co. manufactures a wide range of products for other major industries: construction, packaging, chemicals, automotive, electronics, food manufacturing, pharmaceuticals, etc. Co. operates in this industrial context with a business portfolio focused on three segments: High Performance Materials, Industrial Specialties, and Coating Solutions.
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