EUR 850.00 For Business Accounts Only

Morningstar | CLN Updated Forecasts and Estimates from 24 Jan 2019

No-moat Clariant reported third-quarter results that were broadly in line with our expectations, with EBITDA of CHF 246 million up 3% over the prior-year period. A very strong result in care chemicals more than offset a weaker-than-expected quarter in catalysis. A couple of items in the outlook caught our eye. First, Clariant stated that China softened in the quarter, a sensitive topic for investors in the current market. Second, Clariant confirmed its guidance for 2018 but altered its outlook for the economic environment, noting that mature markets are expected to grow at a slower pace. We don't expect to make a material change to our CHF 19.50 fair value estimate. At current levels, the shares look fairly valued.

Care chemicals reported very strong results in the third quarter, with sales growth of 8% in local currency and the EBITDA margin reaching a record 21.6%. Operational leverage and a better mix led to the 220-basis-point increase in margin over 2017. On the other hand, catalysis was weaker than we expected, with a 33% drop in EBITDA over 2017. A higher contribution of lower-margin syngas catalysts is to blame. We had expected negative EBITDA growth but the magnitude of the margin decline was surprising. Nevertheless, we remain constructive on the business in the medium term as the refill cycle kicks in for the wave of chemical plants that were completed in the U.S. in recent years. In addition, delayed refills in China that will inevitably resume should also bolster growth. The natural resources segment progressed broadly in line with our view. Sales growth over 2017 was 14% in local currency with the improving oil market. However, oil customers continued to be price conscious, which limited EBITDA growth to 7%.