Davy Research |
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Saint-Gobain Group
(SGO FP)
Nippon capacity reduction an indication of difficult trading in European flat glass market
15 May 2012
Flor O'Donoghue
| Closing Price: | 3020c | Rating: | Neutral | 12/09/11 | Previous: | Outperform | 23/04/10 |
FACTS: Nippon Glass has announced that it will keep one of its two furnaces at its Gladbeck float plant closed until at least the end of 2012.
ANALYSIS: This decision was taken due to weak demand for solar energy, automotive and architectural products glass, as well as overcapacity in Europe.
DAVY VIEW: Flat glass accounted for 13% of Saint-Gobain's (SGO) revenues in 2011 and 14% of its EBIT. Circa 60% of the division's revenue base is in Western Europe. The division is unquestionably SGO's weakest at present. Volumes fell 5.1% in Q1. We are forecasting that the division's revenues will fall 4% in 2012 (to €5.3bn) with operating margins expected to contract quite sharply (down almost 200bps to under 7%). News of a capacity shutdown is welcome, although it underlines how challenging trading conditions are.