Specialty and ag chemical companies with pricing power are favored within the European chemicals industry versus the more commodity-type exposure in the space due to concerns about margins and volumes, says Jeremy Redenius, a Research Analyst at Sanford C. Bernstein & Co., LLC.
“We hear a lot of concern from investors about European exposure. Demand trends are negative and not getting better yet. It’s not clear when that will start to get better, given a lot of the economic and political uncertainty throughout Europe,” he said.
Redenius says Akzo Nobel NV (AKZOY) is his preferred stock in the sector because the company is able to increase prices consistently in their industry with a lag versus raw-materials cost inflation. He adds that Akzo Nobel has been able to increase prices faster than before, and basically, offset unprecedentedly strong raw-materials cost inflation, which he believes will start turning in their favor. Also, AKZOY offers the potential for volume improvement in its space.
“They are very levered to home-improvement spending. If people buy and sell, they repaint. They also buy new things, like white goods and furniture, and Akzo Nobel makes the coatings for these. In the U.S. and Europe, volumes for these products are down more than 20% from precrisis levels. They’ve been pretty stable at that level, and so there will be a very strong volume leverage uplift when people start to turn over homes again,” Redenius said.
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