Morningstar | Solid Results for Lanxess Despite Drag From Performance Chemicals; Shares Undervalued
No-moat Lanxess reported fourth-quarter results that were broadly in line with consensus and our estimates. Fourth-quarter EBITDA was EUR 179 million, flat with the prior year period. Lanxess provides qualitative guidance with fourth-quarter results and then gives hard numbers after the first quarter. For 2019, Lanxess expects EBITDA to be around the 2018 level, which implies a slight decrease after considering the impact of IFRS 16. This is also in line with our estimates. We don’t expect to make a material change to our EUR 59 fair value estimate. At current levels, the shares look undervalued.EBITDA grew nicely in the core segments except for performance chemicals, where fourth-quarter EBITDA declined 50% over the prior-year period. Performance chemicals continues to be affected primarily by the leather business and low chrome ore prices. In addition, the pigments business is dealing with a construction slowdown in emerging markets. However, the performance chemicals segment looks like it’s approaching an inflection point. Lanxess has been restructuring the leather business since 2017, and most of the closures have been completed. On the pigments side, Lanxess is closing a plant in China shortly and believes that the business will stabilize in the first quarter.
On the outlook, Lanxess highlighted softening in the automotive market and China, similar to most of its peers that have already reported. Furthermore, the first half of the year has tough comparisons. Regardless, the company expects first-quarter results to be stable over 2018.
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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