KeyBanc: Axalta Buyer Would Pay $40-$45 Per Share

Axalta Coating Systems Ltd AXTA has been in the news due to takeover interest from multiple parties, including Akzo Nobel N.V. (ADR) AKZOY and NIPPON PAINT HLDGS NPCPF.

The Analyst

KeyBanc Capital Markets analyst Michael Sison discussed the M&A possibilities in a Monday note, reiterated his Overweight rating on shares of Axalta and upped his price target from $36 to $40.

The analyst attributed the price target revision to the takeover potential following Nippon Paint's interest in Axalta.

The Thesis

The price range needed to clinch a deal would be 13-15 times P/EBITDA or $40-$45, Sison said. (See Sison's track record here.) 

Antitrust isn't likely to a big issue in the combination of the No. 4 and No. 5 companies in the industry, the analyst said. 

The analyst estimates about 12 percent year-over-year EBITDA growth for Axalta in 2018, with 40 percent coming from organic initiatives and a lack of hurricane and customer issues at Refinish.

"We believe pricing will catch up to offset higher raw materials costs experienced in 2017." 

Following 2017's negative pricing and flattish organic growth performance, Sison said he expects the transportation coating business to rebound in 2018. Axalta's top-line is projected to grow in the mid-single digits and EBITDA is expected to grow near double-digits as further cost savings initiatives help margins expand by 110 basis points, Sison said. 

For the performance coatings segment, KeyBanc sees mid-teens growth in EBITDA, thanks to acquisitions and a more normalized refinish product mix. A 110 basis-point improvement in EBITDA margins is also expected, Sison said. 

The Price Action

After Axalta confirmed it's in discussions with Nippon Paint for over $8.25 billion following the breakdown of its merger talks with Akzo Nobel, the shares of the company rallied about 5 percent Nov. 22.

The shares are up about 31 percent year-to-date.

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