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Investing.com -- J.P. Morgan has placed Akzo Nobel (AS:AKZO) shares on Positive Catalyst Watch ahead of the company’s second-quarter results, citing stronger conviction in likely earnings beats driven by volume growth, pricing momentum, and potential capital returns, in a note dated Friday.
The bank estimates Q2/FY25E and FY26E EBIT to be 7%/6%/5% and EPS to be 5%/4%/6% above Bloomberg consensus.
Analysts flag improvements in European decorative paints, which account for 20% of Akzo’s sales, supported by stronger housing and DIY trends.
This could drive better-than-expected Q2/FY25 volumes, with a 1% volume growth potentially resulting in a 4% upside to current estimates.
J.P. Morgan notes a favorable pricing environment, particularly in China, one of Akzo’s five key markets. This follows net pricing gains over the past year amid stabilizing raw material costs.
Although oil prices have risen recently, the brokerage states the increase is not enough to alter the outlook.
Spot oil prices remain close to 2H24 averages, while raw material prices, especially in China, have declined, reflecting oversupply in chemical value chains. The bank continues to assume low single-digit raw material inflation through 2026.
Akzo’s market remains supported by stable demand in the EU, with housing starts in countries like the UK and France showing strength through 1H25.
Other end-markets remain mixed, with marine and aerospace seeing some recovery, while U.S. demand is weaker due to trade-related uncertainty.
The brokerage also points to a possible capital return event. Akzo’s potential full exit from its Indian unit, valued at approximately €800m, could lead to a €250m share buyback, assuming a 20% control premium over current market value. The brokerage estimates FY25E net debt/EBITDA at around 2x, supporting the buyback potential.
Akzo remains one of J.P. Morgan’s top picks in the European chemicals sector. The stock last closed at €56.98 on June 18. The price target is set at €70 by December 2026.
According to J.P. Morgan’s proprietary scoring, Akzo ranks highly on Momentum with a score of 72, Quality at 47, and Value at 51, while also performing strongly on ESG factors.