Morningstar | Lanxess’ Guidance Refinement in 2Q Fails to Surprise Us Again; Shares Overvalued
No-moat Lanxess reported second-quarter EBITDA of EUR 290 million, up 4% over 2017 and largely in line with our expectations. The company refined its 2018 guidance to “the upper end†of the previously stated 5%-10% growth in EBITDA. This doesn’t surprise us, and we don't expect the market to react positively. Our 2018 EBITDA forecast calls for 11% growth. We have argued that 2018 guidance was overly conservative for the past two quarters, given that 2018 will benefit from an extra three-plus months of Chemtura in the comparison. Consequently, we don't expect to change our EUR 55 fair value estimate. At current levels, the shares look overvalued.Second-quarter volume growth of 1% was uninspiring, while the 5% increase in prices mainly reflects pass-through of rising raw material costs. Engineering materials remains the bright spot, with EBITDA up 13% over 2017 on 4% volume growth and improved margins. We are optimistic on the engineering materials segment, as it is well positioned to benefit from the metal-replacement trend in automotive markets. Performance chemicals was the weakest link, with EBITDA falling nearly 30% over 2017. The leather business remains the major drag, owing to a low chrome price. However, the segment was facing a very tough comparable in the quarter, so the outlook for the rest of the year is not as dire. We think Lanxess may offload the leather business at some point, as it doesn’t fit within the current strategy.
Lanxess is a management holding company, engaged in chemicals enterprise with a portfolio ranging from polymers to industrial, specialty and fine chemicals. Co. has three segments, which comprise 14 business units. Co.'s Performance Polymers segments include five units, Butyl Rubber, Performance Butadiene Rubbers, Keltan Elastomers, High Performance Elastomers, and High Performance Materials. Advanced Intermediates segments include two units, Advanced Industrial Intermediates, and Saltigo. Performance Chemicals segments, include seven units, Material Protection Products, Inorganic Pigments, Functional Chemicals, Leather, Rhein Chemie, Rubber Chemicals, and Liquid Purification Technologies.
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