Today we will issuean update note on Deceuninck in which we stick to our Reduce rating while lowering our target price from € 1.25 to € 0.80.
Our View:
- Volume momentum continues to weaken in 3Q11. Volumes declined by 11.2% y/y in 3Q11. This is a significant worsening of the 2Q11 trend of -6.1% y/y, which management said at the 1H results release would persist into the second half. Overall, revenue declined by 8.2% to € 139.9m with a decline in all zones, although in the case of Turkey, there was growth if we exclude currency effects. The only positive news coming out of the 3Q11 trading update was the further strengthening of pricing, with the price/mix up 8.6% y/y.
- FY guidance recently lowered, signalling tough times ahead.We remind that Deceuninck already lowered its guidance in July towards similar top and bottom-line results for the full year. The company lowered its guidance again at the time of the 3Q trading update towards a 3-4% FY sales decline – implying a 4Q decline of 6-10% – and a positive net profit (€ 8.4m in FY10).
Conclusion
Deceuninck is currently facing a brutal mix of issues including weakening construction markets, persistently high raw materials costs (recent decline in PVC has been mostly offset by further rise in titanium dioxide), stiff competition and market share losses in some of the largest CEE countries (Russia, Poland and the Czech Republic). With little light at the end of the tunnel, we rate Deceuninck Reduce while lowering our target price from € 1.25 to € 0.80.