NEW YORK (dpa-AFX) - According to U.S. bank JPMorgan, Brenntag has been hit particularly hard by the gloomy business outlook in the chemicals industry. Therefore, analyst Chetan Udeshi downgraded the chemicals trader's stock from "Neutral" to "Underweight" and lowered the price target from 83 to 66 euros in an industry report available on Friday. This is almost five percent below the current level.

The continuing weakness in demand in the chemical sector, reflected in numerous profit warnings, together with the increasingly weaker price trends, raises the risk of an unexpectedly massive earnings normalization, also among distributors, the expert fears. He says his estimates for adjusted operating earnings (Ebitda) for Brenntag and rivals IMCD and Azelis in 2023 and 2024 are below consensus forecasts.

At Brenntag, Udeshi sees particularly high earnings risks due to its strong exposure to the basic chemicals market, where pricing pressure is stronger. He also complained the company is not seeing volume growth compared to 2019. The earnings performance in recent quarters also indicates that the quality of Brenntag's specialty chemicals business is significantly lower than that of IMCD and Azelis, the expert added. This reduces the potential for a spin-off of this business in the near future, he added.

Among the other two sector stocks, the expert prefers Azelis to IMCD due to its cheaper valuation. He therefore rates the two stocks as "Overweight" and "Neutral", respectively. The medium- to long-term growth prospects in the sector remain attractive and offer considerable scope for value-enhancing acquisitions.

According to the "Underweight" rating, JPMorgan expects the stock to underperform the respective sector in the coming six to twelve months. "Overweight," on the other hand, means the stock should outperform during that time. "Neutral," in the bank's view, suggests a trend in line with the respective sector./gl/tih/jha/

Analyzing institute JPMorgan.

Publication of the original study: 13.07.2023 / 21:54 / BST

First disclosure of the original study: 14.07.2023 / 00:15 / BST