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14 Jul 2020
The Alchemist: Escape velocity
BASF SE (BAS:WBO), 0 | Bayer AG (BAYN:WBO), 0 | Elementis plc (ELM:LON), 141 | Air Liquide SA (AI:WBO), 0 | Solvay SA (SOLB:WBO), 0 | Clariant AG (0QJS:LON), 0 | Johnson Matthey Plc (JMAT:LON), 1,760 | DuPont de Nemours, Inc. (0A6B:LON), 0 | Novonesis A/S Class B (NZYM:WBO), 0 | Air Products and Chemicals, Inc. (0HBH:LON), 0 | Linde plc (LIN:NAS), 0 | K+S AG (SDF:WBO), 0 | Croda International Plc (CRDA:LON), 4,817 | Victrex plc (VCT:LON), 1,262 | PPG Industries, Inc. (0KEI:LON), 0 | Sherwin-Williams Company (0L5V:LON), 0 | RPM International Inc. (RP8:FRA), 0 | Synthomer plc (SYNT:LON), 244 | Yara International ASA (IU2:FRA), 0 | LANXESS AG (LXS:WBO), 0 | Wacker Chemie AG (WCH:WBO), 0 | Arkema SA (AKE:WBO), 0 | FMC Corporation (0IK3:LON), 0 | Brenntag SE (BNR:WBO), 0 | Evonik Industries AG (EVK:WBO), 0 | Huntsman Corporation (HTR:FRA), 0 | LyondellBasell Industries NV (0EDD:LON), 0 | OCI NV (OIC:STU), 0 | IMCD N.V. (INX:STU), 0 | Axalta Coating Systems Ltd. (0U6C:LON), 0 | Covestro AG (1COV:WBO), 0 | Corteva Inc (0A1W:LON), 0 | Umicore SA (0RUY:LON), 0
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The Alchemist: Escape velocity
BASF SE (BAS:WBO), 0 | Bayer AG (BAYN:WBO), 0 | Elementis plc (ELM:LON), 141 | Air Liquide SA (AI:WBO), 0 | Solvay SA (SOLB:WBO), 0 | Clariant AG (0QJS:LON), 0 | Johnson Matthey Plc (JMAT:LON), 1,760 | DuPont de Nemours, Inc. (0A6B:LON), 0 | Novonesis A/S Class B (NZYM:WBO), 0 | Air Products and Chemicals, Inc. (0HBH:LON), 0 | Linde plc (LIN:NAS), 0 | K+S AG (SDF:WBO), 0 | Croda International Plc (CRDA:LON), 4,817 | Victrex plc (VCT:LON), 1,262 | PPG Industries, Inc. (0KEI:LON), 0 | Sherwin-Williams Company (0L5V:LON), 0 | RPM International Inc. (RP8:FRA), 0 | Synthomer plc (SYNT:LON), 244 | Yara International ASA (IU2:FRA), 0 | LANXESS AG (LXS:WBO), 0 | Wacker Chemie AG (WCH:WBO), 0 | Arkema SA (AKE:WBO), 0 | FMC Corporation (0IK3:LON), 0 | Brenntag SE (BNR:WBO), 0 | Evonik Industries AG (EVK:WBO), 0 | Huntsman Corporation (HTR:FRA), 0 | LyondellBasell Industries NV (0EDD:LON), 0 | OCI NV (OIC:STU), 0 | IMCD N.V. (INX:STU), 0 | Axalta Coating Systems Ltd. (0U6C:LON), 0 | Covestro AG (1COV:WBO), 0 | Corteva Inc (0A1W:LON), 0 | Umicore SA (0RUY:LON), 0
- Published:
14 Jul 2020 -
Author:
Laurent Favre -
Pages:
74
40+ earnings to go and only one question
The abyss of Q2 2020 will provide an interesting historical datapoint on the relative resilience of all subgroups of the chems sector. Beyond that, the Q2 earnings season will likely boil down to the comments on the cadence of Q2 and the look of July. Uncertainty is still high and quarter-ahead predictions will likely be scarce as corporates will have little to no visibility on September, the biggest month of Q3. With this note, we tweak all models into Q2s and roll-over DCFs. The best risk-reward potentials (coatings, distribution, Arkema) are now barely in the double digits, whereas we have a lot of stocks looking full and fair.
Don''t party like it''s 2009 or 2016; earnings momentum into 2H could disappoint further
We look at 2021 expectations against H2 ''20 run-rates and 2019. 2021 looks more like the north face of the Eiger than a walk in the park, with an EBITDA increase of around 15% versus H2 run-rates adjusted for seasonality. We do not see necessarily a significant risk on Q2s per se, but the upcoming season could be a catalyst for consensus downgrades for H2/2021. A rare exception: for coatings and distribution, we believe Q2 could trigger a wave of upgrades that do not seem to be priced in in the case of Akzo and Brenntag in Europe, PPG, Axalta and Univar in the US. Those are our top picks at the moment.
We like ''chicken cyclicals'', we dislike ''the barbell''
We remain cautious on supply/demand conditions into 2021 for most commodities, with mid-cycle looking several years away. The extreme valuations on the super high end of the sector leave little room to disappoint. This is why we would generally avoid the barbell strategy which seems to be very popular with investors at the moment. We think risk/rewards look the worst with Solvay (Underperform) and Neutral-rated BASF, Covestro, Lyondell, Huntsman. We downgrade Clariant to Neutral; shares have re-rated to a fairer valuation and we see...