Nordic Credit Rating (NCR) has raised its long-term issuer rating on Norway-based paint and coatings manufacturer Jotun A/S to 'A-' from 'BBB+'. The outlook is stable. The 'N2' short-term issuer rating has been affirmed, and the senior unsecured issue rating was raised to 'A-' from 'BBB+'.
Rating rationale
The higher long-term rating reflects Jotun's strong financial metrics over time, its low financial gearing and growing net cash position. Both earnings and cash flow continue to be strong, and we project a negative net debt position in our forecast period through end-2026. In addition, we factor into our rating the resulting robust credit metrics, in both absolute terms and relative to the company's peer group.
The rating also incorporates the company's strong operational efficiency. We expect Jotun to maintain an NCR-adjusted EBITDA-margin exceeding 20% and believe that its increasing sales, supported by volume growth, will continue to be a positive contributor to its margins and solid cash generation.
Jotun has a leading position in the market for marine coatings. In the decorative paint market, it is a major player in Scandinavia, the Middle East, and South East Asia.
The rating is constrained by Jotun's small size compared with the biggest players in the global paint and coatings market, where large US companies dominate. We also note the historical cyclicality of the company's margins, which mainly stems from volatile raw material prices but also from cyclical demand in certain market segments. However, Jotun's diversification across market segments and regions has allowed the company to sustain relatively solid margins through economic cycles. In addition, the company has proven ability to increase prices to reflect higher raw material costs.
Stable outlook
The stable outlook reflects our view that strong operating cash flows, despite investment requirements, will enable Jotun to maintain a net debt position below zero in the years ahead. We also believe Jotun has achieved a sustainable EBITDA margin exceeding 20% although we anticipate some increased margin pressure in coming years, due to competition or slowing demand. 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 current prudent dividend policies.
An upgrade seems unlikely at this point given Jotun's current business profile with exposure to cyclical inputs and limited sector diversification.
We could lower the rating to reflect an economic downturn prompting slower demand; sluggish profitability, leading to an NCR-adjusted EBITDA margin below 20% over a prolonged period; or NCR-adjusted net debt/EBITDA sustainably above 1.0x.
Rating list | To | From |
---|---|---|
Long-term issuer credit rating: | A- | BBB+ |
Outlook: | Stable | Positive |
Short-term issuer credit rating: | N2 | N2 |
Senior unsecured issue rating: | A- | BBB+ |
Contacts:
Anine Gulbrandsen, analyst, +4797501657, anine.gulbrandsen@nordiccreditrating.com
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Elisabeth Adebäck, analyst, +46700442775, elisabeth.adeback@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Rating Methodology published on 8 May 2023, NCR's Rating Principles published on 14 Feb. 2024 and NCR's Group and Government Support Rating Methodology published on 14 Feb. 2024. For the full regulatory disclaimer please see the rating report.