European small and mid caps-Stock picks Q4 2007-Q1 2008 - Fourlis

Mid cap
European small and mid caps
17 October 2007
abc
Lanxess — organisational structure, 2007*
Performance Polymers
(45% of sales / margin level: )
Butyl Rubber (11% / )
Polybutadiene Rubber (9% / )
Technical Rubber Products (11% / )
Semi-Crystalline Products (14% / )
Advanced Intermediates
(20% / )
Basic Chemicals (15% / )
Saltigo (5% / )
Performance Chemicals
(35% / )
Material Protection Products (3% / )
Inorganic Pigments (7% / )
Functional Chemicals (6% / )
Leather (7% / )
RheinChemie (4% / )
Rubber Chemicals (5% / )
Ion Exchange Resins (3% / )
*Note: The arrow indicates the margin level (EBITDA pre-exceptionals 2006): 10-15%, below 10%, more than 15%
Source: Lanxess, HSBC estimates
Consequentially, we reiterate our Overweight rating
as well as our price target of EUR47, which implies
a potential return of c32%.
Company profile – at a glance
Lanxess is a German-based, globally operating
chemicals company with a broad portfolio ranging
from basic to fine chemicals. A member of the
MDax, it was spun-off from Bayer in 2004 and
publicly listed in January 2005. It is among Europe’s
major producers of chemical and polymer products.
Originally, the company operated through four
divisions (Performance Rubber, Engineering
Plastics, Chemical Intermediates and Performance
Chemicals). On 25 September 2007, management
announced that it would reorganise its remaining 13
business units into three segments, following its
latest divestment of the Lustran Polymers business
unit in June 2007. Lanxess now operates in three
divisions, namely Performance Polymers, Advanced
Intermediates and Performance Chemicals, with the
first being the most important in terms of revenues.
Some 46% of Lanxess’ assets and c50% of its
c16,000 employees are based in Germany, although
its revenues are less biased towards its domestic
market. Asia, as one of the company’s main growth
drivers, is of increasing importance within the
company’s sales split and now accounts for c18% of
group revenues.
Lanxess —– sales by division, FY 2006 Lanxess — sales by region, FY 2006
Adv anced
Intermediates
19%
Performance
Poly mers
44%
Performance
Chemicals
37%
Asia/Pacific
18%
Americas
26%
Germany
23%
EMEA w /o
Germany
33%
Source: Lanxess, HSBC
Source: Lanxess, HSBC
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