AkzoNobel Earnings: Weak Performance Leads to Share Price Decline Amid Cost-Cutting Measures

Narrow-moat AkzoNobel reported disappointing third-quarter results with a 1% increase in volume leading to nearly a 5% drop in the share price at the opening of the market on Oct. 23. Revenue fell by 3% and adjusted EBITDA declined 5%, accompanied by a 30-basis-point decrease in margin—all on a year-over-year basis. The main challenges were due to an 11% drop in decorative paints in China attributed to a sluggish local real estate market, adverse currency effects, and a slight decline in performance coatings. While AkzoNobel remains optimistic about a recovery in China, which accounts for 14% of total revenue, the fourth quarter is expected to remain subdued. The company has confirmed its adjusted EBITDA guidance for the full year at EUR 1.5 billion, the lower end of its previously indicated range. However, this is in line with our expectations, so we maintain our fair value estimate of EUR 83 per share and see shares as undervalued.