Strong pricing power in Q1 2022, promising outlook for Q2 and FY 2022;BUY

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Lanxess reported a strong start to 2022. It reported robust revenue growth, which beat consensus by 8%. The company successfully passed on the majority of its raw material and energy cost inflation through substantial price hikes, offsetting the impact of weak volume growth. While cost headwinds continue to impact adjusted (adj.) EBITDA margins, profitability should improve ahead, given the possibility of further price hikes. Management is upbeat on EBITDA growth in 2022, while it provided a cautious outlook, citing uncertainty in the global economic recovery, due to the Russia-Ukraine war, rising energy and raw material costs, and likely disruptions in global supply chains (at least until H2 2022). Nevertheless, as the company further realigns its product and IP portfolio from commodities to niche specialties, cyclicality of the business should reduce and the margin and returns potential should improve. More importantly, there is ample space for multiple expansions once management builds more confidence that the transformation process is bearing fruit. Based more cautious long-term estimates, DCF and FCF yield calculate a fair value of EUR 60.00 (old: EUR 75.0). We maintain our BUY recommendation.

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