(News Bulletin 247) – The Swiss bank also increased its price target to 120 euros against 95 euros for the company, showing optimism about achieving its medium-term objectives. It also considers its valuation discount unjustified.

The chemicals sector has had to deal with an unfavorable environment this year, marked by a decline in demand and significant destocking by customers (a bit like the spirits industry).

To give a sense of the magnitude of these headwinds, Arkema’s revenue fell 17% in the third quarter, weighed down by a 6.6% drop in volumes and a 10% drop in prices. .6%, which notably illustrates the decline in raw materials. This bad trend obviously concerns the entire chemical industry. Also in the third quarter, sales of German giant BASF plunged 28% year-on-year, with volumes falling 9.4%.

However, UBS bank is sending a message of confidence for the year 2024. The year 2023 saw the longest destocking period in the last 30 years. It is therefore not surprising that the industry is wondering about the date of resumption of volumes (…) Our analysis suggests that we are at the end or close to the end of the destocking cycle, which allows us to model a resumption of volumes in 2024, +4%”, develops the establishment Switzerland in a sectoral note.

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Credible 2028 objectives

This less unfavorable context leads him to be more optimistic about Arkema. UBS thus raised its purchase advice from “neutral” previously, while increasing its price target to 120 euros compared to 95 euros previously.

As a result, Arkema shares rose 4.6% around 2:55 p.m. on the Paris Stock Exchange, to 95.48 euros.

The bank expects the French group to post volume growth of 6% next year, following a cumulative decline of 19% in 2022 and 2023. Most of this recovery would be driven by adhesives (used in construction, road vehicles or consumer goods) and “advanced materials” (resins and lightweight materials used in aerospace, boating or even sports equipment), two segments which represented 63% of the turnover in 2022.

UBS estimates that the group’s targets for 2028, i.e. a gross operating margin (Ebitda) of around 18% and an operating cash flow of more than 7 billion euros cumulatively, are “feasible”. The bank expects the group to record Ebitda growth of 8% per year.

An unjustified discount

The establishment particularly highlights the group’s cash generation prospects, with a free cash flow per year of 940 million euros, which implies an average return of 13% per year over the period 2023-2028.

Arkema’s average cash flow yield is thus the highest among the diversified chemicals groups covered by UBS. And yet its valuation multiple remains the lowest within this sub-sector (in terms of enterprise value multiple over Ebitda, at 5.5 for Arkema compared to 7.3 for its peers). In view of the company’s prospects, UBS considers this stock market discount “unjustified”.

In addition to Arkema, UBS also raised its advice to buy from “sell” previously, on BASF. The Swiss bank has also confirmed its “buy” opinion on Air Liquide, a group which could soon reach 100 billion euros in market capitalization.