Nordic Credit Rating (NCR) said today that it had affirmed its 'BBB+' long-term issuer rating on Norway-based Jotun A/S. The outlook is stable. At the same time NCR affirmed the 'N2' short-term rating and the 'BBB+' issue ratings on Jotun's senior unsecured bonds.
Rating rationale
The long-term rating reflects Jotun's low financial gearing and strong operational efficiency. It also reflects the resulting robust credit metrics, which are strong in both absolute terms and relative to the company's peer group. Jotun has a leading position in the market for marine coatings. It also holds the No. 1 position in the market for decorative paint in Scandinavia, the Middle East, India and Africa, and occupies the No. 2 position in South East Asia.
The rating is constrained by Jotun's small size in comparison with the biggest players in the global paint and coatings market, which is dominated by large US companies. We also note the cyclicality of the company's margins, which mainly results from volatile raw material prices but also reflects cyclical demand in certain market segments. However, Jotun's diversification across market segments and regions has allowed the company to sustain relatively strong margins through economic cycles. In addition, the company has proven ability to increase prices to reflect higher raw material costs, improving our view of the company's operating environment.
Stable outlook
The stable outlook reflects our view that strong operating cash flows and moderate investment requirements will enable Jotun to maintain strong credit metrics in the years ahead. We anticipate that higher raw material prices will continue to be reflected in higher product prices over time. Jotun's global diversity and exposure to growth markets in Asia partly offset its exposure to cyclical fluctuations. We expect the company to maintain its conservative investment and prudent dividend policies.
We could raise the rating to reflect reduced EBITDA margin volatility through, for example, an increased proportion of revenues from decorative paint. We could also raise the rating to reflect an NCR-adjusted EBITDA margin sustainably above 20%.
We could lower the rating to reflect continuing increases in raw material prices combined with an economic downturn, lower profitability leading to an NCR-adjusted EBITDA margin below 10%, or NCR-adjusted net debt/EBITDA sustainably above 1.5x.
Rating list | To | From |
---|---|---|
Long-term issuer credit rating: | BBB+ | BBB+ |
Outlook: | Stable | Stable |
Short-term issuer credit rating: | N2 | N2 |
Senior unsecured issue rating: | BBB+ | BBB+ |
Contacts:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Rating Methodology published on 18 Feb. 2022, NCR's Rating Principles published on 24 May 2022 and NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022. For the full regulatory disclaimer please see the rating report.