German chemicals major LANXESS could see its shares jump sharply within 12 months on the back of a recovery in the tyre markets and the restructuring programme implemented by the company progressing well, investment bank UBS said on Thursday.
The bank placed its 12-month share price forecast for LANXESS stock at €60, up 19% from its close on 13 May at €50.63. Moreover, the company’s shareholders will enjoy an upturn in earnings per share in 2015 of 8.9% to €2.14, according to UBS estimates. The bank’s recommendation for LANXESS shares remains at a ‘Buy’.
The company’s Performance Polymers will benefit from a global recovery in the tyre industry, especially in the US, where mileage driven has surpassed for the first time the peak achieved before the 2008 financial crisis, according to the Swiss bank.
“Discretionary driving can account for as much as 30% of miles driven at the peak and as little as 5% at the trough. We infer that discretionary trips have picked up and given that this type of driving is often related to long trips, it is an important catalyst of tyre demand,” said the UBS analysts.
“LANXESS reports that it saw ‘monster months’ in March and April for Performance Polymerrubber volumes. We have had a series of false starts in the global tyre market over the past two years but things look much more stable this time.”
The restructuring programme praised by the analysts as a catalyst for future earnings growth, however, was the cause for LANXESS to report a 12% fall in its first-quarter net profit to €22m, as reported by the company on 7 May.