DSM released better than expected 3Q results with EBITDA from continuing operations up 26% to € 339m vs our and consensus forecasts of € 308m, with the upside surprise mainly coming from Polymer Intermediates. Sales grew 14% to € 2,322m (KBCS € 2,217m, css € 2,191m) on the back of 6% volume growth and 8% higher prices. FX was -3% while M&A added 3%. Net profit grew by 116% to € 171m.
Nutrition grew revenue by 16% to € 868m (KBCS € 830m, css € 834m) with volumes up 8% y/y (unchanged from the 2Q trend), prices flat (2Q:-3% y/y), acquisitions adding 10% and FX -2%. EBITDA was up 5% to € 176m which was slightly below our and consensus forecasts of € 183m and € 179m, respectively. Martek added € 26m to EBITDA whereas the negative impact from currencies was € 25m (which was at the high end of the € 20-25m guided range).
Pharma grew revenue by 2% to € 171m (KBCS € 160m, css € 139m) with volumes up 13%, prices up 1%, FX -4% and the impact from the Anti-Infectives JV -8%. EBITDA grew from € 7m in 3Q10 to € 13m in 3Q11 which was in line with our forecast and above css (€ 9m). Higher volumes were the main driver for the EBITDA improvement.
Performance Materials grew revenue by 7% to € 711m (KBCS € 690m, css € 702m), with volumes down 4%, prices up 11%, FX-3% and M&A +3%. Volumes were higher for Engineering Plastics but lower for Resins (due to weaker construction markets) and Dyneema (on lower tender activity in the vehicle protection business). EBITDA grew 7% to € 77m which was in line with css and above our € 70m forecast.
Polymer Intermediates grew revenue by 39% to € 473m (KBCS € 420m, css € 404m) with volumes up 19%, prices up 26% and FX -6%. Volumes were helped by easy comps (maintenance shutdown in China in 3Q10) and yield improvements. EBITDA was much higher than expected with a 137% increase y/y to € 109m (KBCS € 78m, css € 81m).
DSM’s outlook comments remain broadly unchanged: 2011 is still expected to be a strong year with further progress towards achieving the 2013 targets (ie EBITDA of € 1.4-1.6bn, in conjunction with a ROCE of at least 15%) –note that we forecast € 1,262m EBITDA for FY11 prior to this results release vs € 1,161m in 2010. The group comments also to remain vigilant to negative developments in the global economy and repeats the earlier end market insight pointing at a weakening of E&E and construction industries during the third quarter. The divisional outlook comments are broadly unchanged pointing at a higher FY result for Nutrition (including Martek), Performance Materials and Polymer Intermediates, and a lower result for Pharma. 28 31343740434649
Conclusion:
DSM reported better than expected 3Q results although the upside surprise mainly came from the Polymer Intermediates division which is benefiting currently from a very tight global market, which might be temporary. We will slightly up our FY11 EBITDA forecasts on the back of the better than expected 3Q results. We stick to our BUY rating and € 50 target price as we like DSM for the presumed better defensiveness vs other Benelux Chemicals (thanks to its Nutrition business which represents over 55% of group EBITDA) and its attractive valuation (EV/REBITDA11 of 5.1x)