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  • AkzoNobel: Dutch Coating Company With Huge Upside [View article]
    Nigel,

    Thanks for the comments. I agree that AkzoNobel and Sherwin Williams have different business models, but I feel AkzoNobel is smart in their decision to back out of the North American Decorative paint business by selling their unit to PPG because as you correctly mentioned Sherwin Williams is the dominant force with their expansive retail channel. Management knew that the amount of investment to grow their store network in the US from ~500 stores to Sherwin Williams proportions ~3500 stores would have been a horrible waste of money. So, management now has well over one billion euros to focus on investing in the areas where they do succeed, performance coatings and specialty chemicals. They have market leading positions in those areas and are focused on carving moats abroad. It just so happens that their returns on invested dollars are higher in those business segments, returns are well above cost of capital, barriers to entry are higher, and their innovation (calculated by R&D/revenue) is high compared to other companies they compete with.

    I also agree that the EBIT/market cap can be a fairly bad way to compare companies and I should have just used Enterprise Value for more of an apples to apples measure. Even if we do use EBIT/EV or practically any other form of valuation metric, AkzoNobel is significantly below PPG (who is a closer related company), Sherwin Williams and practically every other company in the coatings and specialty chemicals industry.

    The question becomes is the market justified in putting such a low relative price tag on a company with global market leading positions in almost all of their business segments, with competent management, significant barriers to entry and returns that should continue to exceed cost of capital?
    Nov 27 12:42 PM | Likes Like |Link to Comment
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