Morningstar | CLN Updated Forecasts and Estimates from 09 Aug 2018
No-moat Clariant reported second-quarter results slightly below our estimates, as surprisingly weak results in the natural resources segment were mostly offset by strong results in the larger plastics and coatings segment. China remained a major positive driver in the quarter, particularly for the catalysis business. Second-quarter EBITDA of CHF 256 million was up 10% over 2017, with 7% sales growth in constant currencies and a 20-basis-point increase in the margin. We don’t expect to make any material changes to our forecast or our CHF 19.50 fair value estimate. At current levels, the shares look overvalued.In natural resources, EBITDA fell 17% over 2017, while we were looking for a sizeable increase, given much-improved market conditions in oil and gas. Lower margins carry most of the blame, as the EBITDA margin dropped 270 basis points over 2017. While volumes in the oil business are growing, customers' price-consciousness remains a challenge. The segment is dealing with raw material inflation, while price increases are lagging. Furthermore, the margin was affected by a weaker mix in the functional minerals business with higher foundry sales and lower contribution from edible oils, as this year's edible oil crops are high-quality, resulting in lower demand for Clariant’s bentonite. We still expect improvement in the oil business in the second half of 2018 as industry production ramps up with higher oil prices and Clariant’s delayed price increases start to take effect.
Local-currency sales increased 21% in China over 2017 in the second quarter. A good portion of the growth is from catalyst sales, which reflects fundamental business trends. However, China was also strong in the plastics and coatings segment, which we think reflects some temporary demand from the environmental crackdown in China that occurred over the winter.
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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