Integration Of Lucas Meyer Cosmetics And Sustainability Efforts Will Strengthen Market Position

Key Takeaways

• Clariant's cost savings programs and operational efficiencies are significantly improving profitability and positively impacting net margins.
  
• Sustainability focus and successful integration efforts enhance long-term growth prospects and revenue, strengthening EBITDA through increased scale and synergies.
  
• Economic uncertainties, restructuring costs, and tariffs challenge Clariant's growth, with stagnant catalyst sales and weaker Care Chemicals performance impacting profitability.

Catalysts

Develops, manufactures, distributes, and sells specialty chemicals in Switzerland, Europe, the Middle East, Africa, the United States, and the Asia Pacific.

• Clariant's performance improvement programs are on track, with 96% of the CHF 175 million cost savings program already achieved, and a new savings program targeting an additional CHF 80 million in savings by 2027. These initiatives are expected to contribute significantly to profitability, impacting net margins positively.
  
• The successful Lucas Meyer Cosmetics integration, which delivered high single-digit growth despite weakening demand in the luxury segment, is expected to continue supporting revenue growth and enhance EBITDA through increased scale and synergies.
  
• Clariant is targeting an EBITDA margin improvement to 17% to 18% before exceptional items in 2025, driven by sustained pricing discipline, operational efficiencies, and restructuring activities. This is expected to positively impact earnings.
  
• The closure and downsizing of sunliquid will stop incurring costs by 2025, removing previous negative impacts on the P&L, thereby improving net margins and increasing profitability.
  
• Clariant’s strong focus on sustainability, evidenced by improved sustainability ratings and reduced emissions, positions the company favorably for long-term growth and cost savings, potentially enhancing net margins by attracting environmentally conscious customers and partners.

Clariant Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Clariant's revenue will grow by 3.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.9% today to 7.7% in 3 years time.
• Analysts expect earnings to reach CHF 356.7 million (and earnings per share of CHF 1.01) by about March 2028, up from CHF 244.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as CHF320.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.7x on those 2028 earnings, up from 14.4x today. This future PE is lower than the current PE for the GB Chemicals industry at 30.6x.
• Analysts expect the number of shares outstanding to decline by 0.21% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.58%, as per the Simply Wall St company report.

Clariant Future Earnings Per Share Growth

Risks

• The guidance for local currency sales growth is at the lower end of the 3% to 5% range, indicating a cautious outlook amidst expectations of limited economic recovery and prevailing uncertainties, impacting revenue growth prospects.
  
• The resilience in EBITDA margins may face challenges due to increased restructuring charges of CHF 75 million expected in 2025, which could offset some of the cost-saving benefits previously achieved, affecting net margins.
  
• Economic challenges are anticipated to remain, including tariffs and trade tensions, which could adversely impact Clariant's ability to achieve optimistic sales projections, ultimately affecting earnings.
  
• Catalysts sales are expected to remain flat due to a subdued economic environment and reduced new build activities in the sector, leading to stagnation in this business unit's contributions to revenue and profitability.
  
• Issues such as decreased seasonal sales and lower fixed cost absorption in Care Chemicals due to weaker deicing fluids demand have impacted recent profits and could further pressure the unit's financial performance going forward.

Valuation

• The analysts have a consensus price target of CHF13.682 for Clariant based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CHF18.0, and the most bearish reporting a price target of just CHF10.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CHF4.6 billion, earnings will come to CHF356.7 million, and it would be trading on a PE ratio of 14.7x, assuming you use a discount rate of 5.6%.
• Given the current share price of CHF10.71, the analyst price target of CHF13.68 is 21.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.