An exposure to late-cyclical sectors and cost savings launched prior to the recession could see Dutch chemical group AkzoNobel outperform more expensive peers this year. Shares in the world's biggest paints company have fared poorly so far in 2010, partly due to fourth-quarter results that missed estimates on disappointing margins at decorative paints, leading many analysts to cut their price targets.

But AkzoNobel is slashing costs as it seeks an earnings before interest, taxes, depreciation and amortisation (EBITDA) margin of 14 percent by end-2011, up from 12.7 percent in 2009. "It is time for the cost savings to reign," said Rabo Securities analyst Fabian Smeets. "Most other chemicals companies have already finished their cost savings, but we expect AkzoNobel will do at least 100 million euros more."

The company has already achieved 642 million euros in savings, exceeding its targeted 540 million in cost cuts and synergies from the acquisition of British paints firm ICI by end-2011. The savings are more than a third of 2009 EBITDA. In comparison, US rival PPG has targeted $250 million in cost savings and synergies from its acquisition of SigmaKalon.

When AkzoNobel announced its 14-percent margin target in 2007, the firm had a pro forma margin of 12.7 percent, lagging the sector average of 13.9 percent. There are now 15 analysts who rate AkzoNobel "strong buy" or "buy", up from 11 analysts 90 days ago, while the number of "hold" ratings has fallen to 7 from 12. The number of "sell" or "strong sell" ratings is unchanged at 4, Starmine data shows. Citigroup, acknowledging recently the economic recovery is likely to be sustained but uneven, has named AkzoNobel as one of its top European chemicals picks, as it upgraded the sector to "overweight".

Copyright Reuters, 2010