Street View: Lanxess profit warning spotlights waning recovery for chemical industry
20/06/2023 11:42
** German speciality chemicals maker Lanxess LXSG.DE on
Monday evening slashed its second-quarter and annual core profit
forecasts on no visible demand recovery as customers continued
to destock, sending its shares at their lowest in over three
years
PROFIT WARNING FLAGS RECOVERY LAG, CAST DOUBT OVER COMPANY
STRATEGY
** UBS notes the release echoes profit warnings by peers
such as Croda CRDA.L and Victrex VCTX.L , as well as downbeat
comments by peers such as Solvay SOLB.BR , which said last week
it expected a Q2 EBITDA decline at lower end of its forecast,
and Covestro 1COV.DE , which flagged weaker-than-expected Q1
volumes at the end of April
** "I think the most important cross read is really that
Lanxess is seeing no uptick in order volumes for (Q3), also not
from China," Baader Helvea analyst Konstantin Wiechert says,
adding this puts at risk every company guidance that implies a
noticeable improvement in China in the second half of this year,
such as BASF BASFn.DE , Evonik EVKn.DE , EMS Chemie EMSN.S ,
and Lenzing LENV.VI
** "We believe the drop in volumes is temporary and related
to the destocking process," analyst Massimo Bonisoli at Equita
however says
** However, a profitability drop "of this magnitude" has not
been seen since 2009, when the company had exposure to much more
cyclical and predominantly automotive-related verticals,
Bonisoli adds
** Jefferies analysts say that "investors should rightly
wonder whether ... a warning of this magnitude calls into
question the success of (Lanxess's) strategy to date", which had
aimed at upgrading portfolio mix and business resilience through
acquisitions
** This level of gearing will be a focus for investors, UBS
adds, despite no explicit covenants and ample liquidity
(Reporting by Linda Pasquini)
((Linda.pasquini@thomsonreuters.com))