Deceuninck saw 2Q11 revenue decline by 2.4% to € 152.3m which compares to our +2.0% forecast of € 159.2m (which was in line with the consensus).
The shortfall is entirely due to much weaker than expected volumes (-6.1% y/y whereas we expected +2.0%). Price/mix was stronger than expected at +7.7% and accelerated from the 1Q11 trend (+4.6%), showing some effect from price increases as well from a favourable geo-mix effect (better sales performance in regions with higher added value product revenues). FX was negative at -4.1% (KBCS -5.0%), mainly due to the Turkish Lira, USD and GBP.
Western Europe held up fairly well, with 4% revenue growth (to € 62.9m), thanks to solid performances in France, Benelux and Italy, offsetting weakness in Spain and the UK. Central & Eastern Europe saw revenue decline by 3.8% to € 44.0m, with Russia and the CEE-zone performing sluggish (and offsetting growth in Germany which is included in this zone). Turkey saw revenue decline by 1.1% to € 30.2m, albeit sales grew by 12.7% at constant currencies. Sales declined by 21.5% in the US (to € 15.2m), with a decline of 12.7% at constant currencies.
Deceuninck lowered FY11 guidance from a higher top line and profit performance to similar results vs FY10, citing weakening sales volumes and high raw materials prices.
Conclusion :
The weakening volume trend is worrying, whereas the profit warning shows that Deceuninck is probably also still in catch-up mode with regards to raw materials prices, even if European PVC prices have declined by € 15/ton (to € 1,295/ton) in June and we expect a further decline in July on declining ethylene prices. Average PVC prices for the first half are still up about 13% on the FY10 average PVC price and the end of June price is about 15% higher than the FY10 average PVC price.
Prior to this trading update, we were expecting a 5.3% revenue growth and a 50bps REBITDA margin decline. Thanks to lower financial charges this led to an increase in net profit from € 8.4m to € 11.1m. We will significantly lower our forecasts to align with the new profit guidance.
As Deceuninck is trading at 17.2x P/E11e and 5.5x EV/REBITDA11e (on our old forecasts which will be significantly lowered), we see little support to the share price from valuation in the short run. We stick to our Hold rating but we decided to lower our target price from € 2.0 to € 1.80.