JPM ups EU chemicals on valuation despite uncertain macro outlook

Elementis

02/12/2024 09:17

** European chemicals are "still bobbing around the bottom",
J.P. Morgan says in a sector note, cites earnings of the
cyclical names remaining at or close to trough levels and cheap
valuations
    ** It notes that earnings momentum will likely be negative
in near-term due to uncertainty from potential Trump tariffs,
but magnitude of incremental cuts should be more modest after
median cuts to 2025 consensus EPS already seen in the past year
    ** It raises Air Liquide  AIRP.PA , AkzoNobel  AKZO.AS  to
"overweight" from "neutral", Johnson Matthey  JMAT.L  to
"neutral" from "underweight", citing Air Liquide's strong
defensive growth, underestimated potential margin upside from
AI-related layoffs
    ** It places AkzoNobel on its Positive Catalyst Watch into
Q4 results in Jan, as it expects quarterly adjusted EBITDA 4%
above company consensus, cites attractive valuation and "more
benign raw materials price outlook than previous concerns" in a
separate note as main reasons behind upgrade
    ** JPM says other key 2025 themes will be German and China
stimulus, Russia/Ukraine resolution, housing and construction
demand recovery benefits for cyclical chemical stocks, auto
market boost from rate cuts, potential demand moderation
consumer chemicals after strong 2024, sector-wide cost-cutting
that could lift earnings
    ** It keeps Syensqo  SYENS.BR  and DSM-Firmenich  DSFIR.AS 
on Analyst Focus List with "overweight" and "underweight"
respectively despite 2024 underperformance, sees them as
mispriced based on portfolio quality and mid-term earnings
    ** The broker has an "overweight" rating on Syensqo, Umicore
 UMI.BR , Solvay  SOLB.BR , Azelis  AZE.BR , IMCD  IMCD.AS ,
Novozymes  NSISb.CO , Elementis  ELM.L , Victrex  VCTX.L  and
Evonik  EVKn.DE , an "underweight" one on Yara  YAR.OL  with
Brenntag  BNRGn.DE  and Lanxess  LXSG.DE  as relative
"underweights"
    ** Shares in AkzoNobel rise 3.8% at 0912 GMT, while Johnson
Matthey and Air Liquide are up 1.5% and flat respectively

 (Reporting by Olivier Cherfan)
 ((olivier.cherfan@thomsonreuters.com))