DECEUNINCK: Preview 2Q11 trading update

Deceuninck will release a 2Q11 trading update on 14 July before market.
We remind that sales grew by 6.8% y/y to € 116.6m in 1Q11, with volumes +2.4%, FX -0.2% and price and mix effects accounting for +4.6%. Deceuninck hinted at the time of the release of the 1Q trading update (10 May) of similar order intake trends at the start of the second quarter.
We forecast 2Q11 revenue to grow by 2% to € 159.2m, broken down in a 2.0% volume increase, a 5.0% price/mix and a -5.0% FX effect (mainly on the back of the TRL and $ which both depreciated almost 15% vs. the € in the second quarter).
Although Deceuninck traditionally gives no insight in the profit performance with its quarterly trading updates, the company usually comments on the FY profit outlook. With this respect, current FY11 guidance calls for higher sales and profits (which is incorporated in our model with an anticipated increase in revenue of 5.3% and an anticipated increase in net profit of 32%).
Interesting is that European PVC prices declined by € 15/ton in June, the first monthly drop since end 2009. With weakening ethylene prices we would expect further PVC price declines to follow in the coming months. Note that the PVC price in June 2011 (of € 1,295/ton) is still about 9% above the level of year-end 2010 and that the average 1H11 European PVC price is still 13% above the average price of 2010. So whereas the recent decline in PVC prices is good news, it is still uncertain whether Deceuninck has been able to fully absorb/offset the raw materials price increases since the start of the year.

Our View:
Despite some recent raw materials price declines, we see no reason to change our Hold rating. Average PVC prices in 1H11 are still well above 1H/FY2010 levels and visibility on pricing power is fairly limited.