Akzo Nobel announced it will invest € 140m to convert its chlorine plant in Frankfurt (Germany) that was acquired in 2009 (LII Europe) into membrane technology. The investment will increase capacity by roughly 50%, from 165kt chlorine to about 250kt, and is due to come on stream in the fourth quarter of 2013.
Akzo Nobel currently has five chlorine plants in Europe with a total production of over 1m tons in 2010.
Stricter European environmental regulations require the shift from mercury electrolysis into membrane technology in the coming decade. We estimate current profitability of the Industrial Chemicals segment (part of Specialty Chemicals division) to be excellent, as still weak demand from the construction sector for PVC (and its raw material chlorine) has resulted in a well balanced market for caustic soda. We assume the investment is part of the capex budgets (of € 600-700m per annum) included in our earnings model for the coming years and hence make no changes to our estimates. We also stick to our BUY rating and € 60 target price and still like Akzo for its strong balance sheet, market leadership position in a still fragmented coatings industry, excellent geo-mix and discounted valuation compared to key coatings peers.