European chemicals sector to remain challenging - Morgan Stanley

Elkem ASA

23/08/2023 13:56

** Morgan Stanley says the outlook for European chemicals
remains challenging over weak demand in Q3, and very few players
can expect a rebound in the second half of the year
    ** MS suspects this has been a muted summer, with "order
books still running light" and few macro factors offering
near-term support"
    ** Morgan Stanley expects some companies to move in the
lower end of their profit guidance range, even when including
cost savings (like BASF  BASFn.DE  , Evonik  EVKn.DE  ), or even
slide lower and face another downgrade as they still wait for
China stimulus
    ** Across MS coverage, 11 European chemical companies saw 
FY23 earnings expectations downgraded, 4 companies guided
towards the lower end of previously set range and 3 companies
reiterating their outlook 
    ** The brokerage believes it is too early to turn optimistic
over the sector before seeing clear "signs of inflection" such
as an uptick in order books, a step-up in Chinese production
activity or a government stimulus
    ** MS is more confident in specific stocks like Akzo Nobel,
 AKZO.AS  on compelling margin expansion, and Lanxess  LXSG.DE ,
which is seeing an improvement in free cash flow generation and
deleveraging beyond 2023 
    ** It cuts Elkem  ELK.OL  to "equal weight" from
"overweight," with the near-term silicone weakness presenting
higher than expected downside risk to earnings and free cash
flow
    ** Shares of European chemicals sector  .SX4P  fell almost
5% in the last month
    

 (Reporting by Matteo Allievi)
 ((Matteo.allievi@thomsonreuters.com))