CLZNF - Clariant: Long-Term Prospects Remain Bright

2024-07-15 10:12:20 ET

Summary

• Sales decreased by 15.5% in Q1 2024 due to lower product prices and volumes, foreign exchange headwinds and a divestment.
• The EBITDA margin improved significantly and is expected to reach 17-18% in 2025.
• The recent acquisition of Lucas Meyer Cosmetics should improve the company's overall profitability and drive growth from now on.
• The management decided to freeze the dividend as the revenue recovery is expected to be slow.
• This represents a good opportunity for long-term dividend investors with enough patience.

Investment thesis

The last article I published about Clariant ( CLZNF ) was in November 2023 because the effects of the inflationary crisis were causing a weakening of the global household purchasing power, negatively impacting revenues and profit margins due to lower volumes. This contraction in profitability was also aggravated by foreign exchange headwinds and the increase in production costs due to high inflation rates. As a result, the share price decreased by 54.83% from the 10-year high of CHF 29.38 reached in January 2018.

More recently, Q1 2024 brought mixed results . During the quarter, sales decreased by 15.5% as lower raw material prices forced the company to adjust product prices. Still, margins improved significantly as the company limited product price reductions. Expectations from here are also mixed, with sales expected to remain weak in 2024 and the recovery in 2025 to be slight. Expectations regarding profit margins are somewhat better because, as expected, the company closed the acquisition of Lucas Meyer Cosmetics at the beginning of Q2 2024 for $810 million (CHF 720 million), which has much higher EBITDA margins compared to Clariant and will significantly expand the company's presence in the cosmetic ingredients market from now on. In this regard, this acquisition has the potential to improve Clariant's profitability profile in the long run as the cosmetic ingredients industry is highly profitable, and the same applies to potential revenue growth....

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