Advising to invest in Arkema, a chemicals group, may seem incongruous as investors attach increasing importance to the theme of ecological and energy transition, and the economic crisis is in full swing. This is not, however, incompatible.
Aware of its environmental responsibility, the group has embarked on an ambitious climate plan which aims to align its activity with the Paris agreements on the basis of the Science Based Target methodology. A methodology recognized by the largest investment funds, which gives credibility to the company’s commitments. Its objective is to reduce its absolute greenhouse gas emissions by 38% in 2030 compared to 2015, regardless of the increase in its production volumes, and more generally, its environmental footprint.
Arkema is also very ambitious. The group wants to completely refocus on specialty materials. To achieve this, it will pursue its strategy of targeted acquisitions – the Italian companies Fixatti, specializing in heat-bonding adhesive powders, and Ideal Work, in decorative flooring technologies, have recently joined its scope, for example -, and separate of its cyclical activities. By 2024, its turnover should be between 10 and 11 billion euros, against 8.7 billion in 2019, and its gross operating margin to reach 17%, or 1.2 points more than last year. The materials produced by Arkema are essential in many areas and their demand will remain dynamic, driven by new needs (in mobility, urbanization, the environment, etc.). The health crisis has not yet resulted in these objectives being called into question.
An increasingly less cyclical activity
Finally, in a contrary environment, Arkema proved to be resilient in the first half of the year, with a drop in turnover limited to 10.7% (to nearly 4 billion euros), a gross operating margin of 14 , 7% (against 17.4% a year earlier) and a current net profit of 190 million (- 46.8%). Visibility over the second half of the year remains low, as the improvements seen this summer may be halted with the return of the epidemic. Activity is expected to improve gradually over the next year, but that progress once again hangs on the evolution of the virus. The consensus is for the full year on a net profit of 383 million euros, and 491 million in 2021. Forecasts that the title capitalizes 18.2 and 13.8 times respectively. These levels may seem reasonable for an industrial group, but Arkema has changed status. The cyclicality of its activity has been significantly reduced thanks to a better geographical distribution of its sales, and the multiplication of the markets served. They do not take into account either the group’s ability to grow thanks to its innovative products, nor its speculative aspect. Its completely open capital could leave the field open to a predator.
Our advice: Buy Arkema under 90 euros to aim for a return to its highs at 110 euros in the medium term. Isin code: FR0010313833.
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