On Tuesday, Citi revised its price target for Arkema SA (OTC:ARKAY) (AKE:FP) (OTC: ARKAF) shares, a global manufacturer and distributor of chemical products, from EUR110.00 to EUR93.50. The firm has decided to maintain a Neutral rating on the stock.
The adjustment follows a new seasonality analysis and the anticipation of limited improvements in trading conditions, which suggest a potential downside to the second half of 2024's adjusted EBITDA consensus. Citi's analysis indicates that, historically, Arkema's earnings in the second half of the year are on average 14% lower than in the first half, excluding the years 2020 to 2022.
If this trend continues, along with contributions from new projects, cost savings, and the Performance, Additives, Materials and Industrial Applications (PIAM) division amounting to €80 million, the forecasted 2H24 adjusted EBITDA would be €751 million, which is 7% below the current consensus from Visible Alpha.
The report further notes that underlying business fundamentals do not support a reduction in this seasonality for the current year. Although there may be some year-over-year volume improvements, market spreads present a mixed picture.
Specifically, Polyvinylidene fluoride (PVDF) margins have seen a significant decline of 71% year-over-year and are down 45% compared to the average of the second half of 2023. In the Acrylics sector, while European and US spreads have decreased year-over-year, spreads in Asia have seen an uptick.
The analyst from Citi suggests that the full-year 2024 guidance for Arkema may be adjusted toward the lower end of the range due to these factors. This projection takes into account the typical seasonality of the company's earnings and the current market conditions, which include fluctuating spreads in key product segments.
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