MS says 2025 turning point for EU chemicals, names Akzo as top pick

Elkem ASA

05/09/2024 11:34

** Current demand growth in European chemicals lacks near
term catalysts, but is set to improve from 2025, supported by
interest rates' cuts and lower gas prices, says Morgan Stanley
    ** MS analysts anticipate 2.7% supply growth on average over
the next four years (vs 4.6% over the past four years),
    ** It adds that combined with higher demand, the growth
should lead to higher profits, based on higher utilisation rates
and improving margins
    ** As chemicals companies have faced weak profitability in
2024 and are expected to provide 2025 guidance below consensus,
the broker prefers names with high cash generation supported by
identifiable growth drivers 
    ** MS ups Wacker  WCHG.DE , Lanxness  LXSG.DE  and Arkema
 AKE.PA  on improved profitability, as the German companies are
expected to see recovery in their main segments while the French
group should benefit from the lithium batteries (LFP) market
share gains within the EV market 
    ** The broker names Akzo Nobel  AKZO.AS  its top pick, as
shares recovery couples with expected growth and the relative
low risk profile of the coating business
    ** It cuts Air Liquide  AIRP.PA  and Syensqo  SYENS.BR  to
'underweight', as the latter lacks near term catalysts to
balance negative net pricing and the French group is challenged
by sluggish customer capex growth
    ** The Stoxx Europe 600 Chemicals Index  .SX4P  is down
0.9%, with Air Liquide at the bottom of the index, at -2.2%,
while Lanxess leads the risers, at +4.4%
    
    
    Table summarizing Morgan Stanley's recommandation changes on
European chemicals companies

                FROM        TO
 Chemicals    Cautious    In-Line
  Industry               
   AKE.PA        EW         OW
  LXSG.DE        UW         OW
  WCHG.DE        EW         OW
  AIRP.PA        EW         UW
  SYENS.BR       EW         UW
  BASFn.DE       NA         EW
   ELK.OL        NA         EW
 
    
     
    

    
    

 (Reporting by Alban Kacher)
 ((alban.kacher@thomsonreuters.com))