UPDATE 3-Oil costs force AkzoNobel into price hikes

Thu Feb 17, 2011 2:02pm GMT

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* Q4 EBITDA 377 mln euros vs consensus forecast 409 mln

* Sales 3.62 bln euros vs consensus forecast 3.41 bln

* Aims for more than 5 pct sales, EBITDA growth in 2011

* Shares up 2.1 pct

(Adds comments on takeover speculation, details, shares)

By Aaron Gray-Block

AMSTERDAM, Feb 17 (Reuters) - AkzoNobel (AKZO.AS) said it was optimistic it could raise prices and cut costs to offset higher oil-based raw materials prices in 2011, while dismissing talk the Dutch chemical group could be a takeover target.

Speculation about a potential leveraged buyout of the world's largest paint maker surfaced last week, helping to lift AkzoNobel's stock to a 32-month high.

Chief Financial Officer Keith Nichols tried to pour cold water on the rumour during AkzoNobel's results on Thursday.

"We are a leader in our business and we have a scale, to be honest, and I should not be commenting, that is quite a bite in this market to contemplate. So we are sticking to what we do, what we think is the right valuation strategy," Nichols said.

Rising metal and oil prices cut into AkzoNobel's margins in the fourth quarter. AkzoNobel, which makes coatings for laptops, houses, planes and ships, said its margins fell to 10.4 from 11.9 percent and core profit was below the consensus estimate.

Nichols said margins will be weaker again in the first quarter but improvements will come in the second. He said the company was confident it could fully offset the higher prices, despite a lag of a few months before such measures take effect.

AkzoNobel Chief Executive Hans Wijers told reporters the company saw a mid-single digit rise in raw materials prices in 2010 and that it expects "at least the same" in 2011.

United States-based rival Sherwin-Williams (SHW.N) forecast a strong first quarter last month on expected price hikes for its paints, but PPG (PPG.N) said it was still battling raw material inflation. [ID:nSGE70I0DF] [ID:nN19138009]

PAINT JOB

AkzoNobel, which has squeezed out about 700 million euros in savings and synergies after buying British paints firm ICI in 2008, is targeting 20 billion euros in annual sales in 2015, with half of this expected from emerging economies.

It has been rebranding its Glidden paint brand in a bid to boost its U.S. market share, but Nichols declined to say when the business will start turning a profit.

"A bolt-on takeover in the decorative paints sector in the United States could strengthen the position," Theodoor Gilissen analyst Tom Muller said.

Shares in AkzoNobel, which analysts say have been held back by pension and restructuring costs, were up 2.1 percent at 49.57 euros at 1305 GMT, outperforming a 0.3 percent rise in the Stoxx Europe 600 index .SX4P.

AkzoNobel posted a 3 percent rise in quarterly earnings before interest, tax, depreciation and amortisation but missed a consensus forecast from a Reuters poll. It also fell short of a Starmine SmartEstimate, which rates analysts based on past accuracy and timeliness, of 410 million euros.

AkzoNobel shares trade at about 17 times estimated earnings, on a par with Sherwin-Williams, but more expensive than PPG, at 15 times, and Germany's BASF (BASFn.DE) which trades at 12.5. (Reporting by Aaron Gray-Block; Editing by Sara Webb and Alexander Smith)

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