EUR 850.00 For Business Accounts Only

Morningstar | Mixed 3Q Results for Lanxess; Shares Fairly Valued

No-moat Lanxess reported third-quarter EBITDA of EUR 277 million, up 1.5% from the year-ago period. This was in line with consensus but slightly below our expectations due to a poor result in performance chemicals. The company highlighted similar trends we have seen reported by peers this quarter, including a visibly tougher environment in automotive and more-moderate demand in construction. Management confirmed guidance for EBITDA growth of 5%-10% in 2018. We don’t expect to make a material change to our EUR 59 fair value estimate. At current levels, the shares look fairly valued.

Performance within the segments was inconsistent. On the bright side, EBITDA was up 21% in specialty additives, although helped by the acquisition of Solvay’s U.S. phosphorus additives business. Nevertheless, the EBITDA margin was up 250 basis points as synergies from the Chemtura acquisition took effect. We continue to be optimistic on this segment and expect mid-single-digit growth in EBITDA over the medium term. On the other end, the performance chemicals segment was clearly weak, with EBITDA down 19% over 2017. Volume declined 8% and the EBITDA margin fell 190 basis points. Soft results from lower volume of pigments for the construction industry and a weaker chrome ore business were amplified by the divestment of the chlorine dioxide business. The advanced intermediates segment continued to be weighed down by weak agricultural markets, leaving EBITDA flat with the prior-year period. Engineering materials reported a healthy 7% increase in volume, pushing EBITDA up 9% over 2017 with operating leverage. We remain constructive on the engineering materials segment as it is well positioned to benefit from the metal-replacement trend in automotive markets. Furthermore, profitability should improve over time as the mix shifts to higher-margin compounding products and excess caprolactam production is absorbed internally.