Morningstar | Clariant Hit by Soft Demand in China and Automotive in 1Q; Shares Fairly Valued
No-moat Clariant reported decent results in the first quarter, compared with our numbers, with EBITDA of CHF 236 million. However, consensus was more optimistic on the quarter, causing the stock to trade down 2%-3% at time of writing. Weakness primarily resided in the plastic and coatings segment, where EBITDA fell 17% because of soft demand in automotive and China. We don’t expect to make a material change to our forecast or our CHF 20.50 fair value estimate. At current levels, the shares look fairly valued.EBITDA increased 7% in care chemicals. The consumer side remained robust with double-digit sales growth in personal care and home care, while crop solutions was solid with mid-single-digit sales growth. The aviation business again had a negative impact on the segment, which is having a softer year due to unfavorable weather in North America and a high comparison.
In catalysis, EBITDA grew 13%, which was a positive surprise given pre-buying cited in the fourth quarter. This business is notoriously difficult to forecast on a quarterly basis so we remain comfortable with our full year estimates.
EBITDA fell 8% in natural resources. The EBITDA margin continues to disappoint as the price environment in oil services remains challenging. Our 2019 forecast calls for modest improvement in margins from the 12.5% reported in the first quarter. As sales have now picked up, with a double-digit expansion recorded in oil and mining services in the first quarter, we continue to believe some progress will be made throughout the year.
Clariant is a specialty chemicals group based in Switzerland. Co. develops, manufactures, distributes and sells a broad range of specialty chemicals which play a key role in its customers' manufacturing and treatment processes or add value to their end products. Co. has manufacturing plants around the world and sells mainly in countries within Europe, the Americas and Asia. Co.'s businesses are organized into four business areas: Care Chemicals (BU Industrial & Consumer Specialties), Catalysis & Energy (BU Catalysts, Business Line Energy Storage), Natural Resources (BU Oil & Mining Services, BU Functional Minerals), and Plastics & Coatings (BU Additives, BU Masterbatches, BU Pigments).
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