AkzoNobel Earnings: EBIT Beats Vara Consensus With Successful Pricing Measures

Narrow-moat AkzoNobel AKZA reported first-quarter EBIT of EUR 218 million, down 5% over 2022 but ahead of the Vara consensus. The decline was mainly attributed to raw material inflation and negative mix and volume, which offset pricing measures. However, the market reacted positively to the results, as the stock showed a small increase in comparison with peers trading in negative territory for the day. AkzoNobel management remains optimistic about the outlook for the year, and as such we don’t anticipate any changes to our EUR 100 fair value estimate. The shares currently appear undervalued.

Despite decorative paints and performance coatings experiencing an increase in pricing by 7%, volumes for the former were negative 1%, and the latter saw a decrease of 4%. Europe’s lower volume in decorative paints was partially offset by China’s rebounding higher volumes, while industrial coatings’ continuing weak demand was the main cause of volume loss in Performance coatings, which offset volume growth in marine and protective. Moreover, Russia’s activity suspension had a 1% adverse impact on revenues.

We continue to be impressed with AkzoNobel’s pricing power and expect that profitability should improve during the second half of 2023 as raw material prices continue to ease. By the end of 2023, the company aims to reduce its leverage ratio to under 3.4 times net debt/EBITDA, accounting for the effect of the Kansai Paint Africa purchase, and then return to approximately 2 times after that. Guidance is calling for EBITDA of EUR 1.2 - EUR 1.5 billion in 2023.