STOCKS NEWS EUROPE-Chemicals to diverge in solid year - Citi

Fri Jan 11, 2013 7:09am EST

The chemicals sector in Europe should perform well in 2013 but will see more diverse returns as compared to last year's showing, with growth much more dependent on individual stocks and their response to a sluggish global outlook, Citi says in a note.

Top picks for the year include DSM, Johnson Matthey and Linde. In agriculture, Citi likes Syngenta and Yara

"We expect another year of solid performance in 2013 but we believe outperformance will be more selectively delivered. Our 'Buy' recommendations focus on structural growth rather than market/cyclical plays," Citi says in a note.

The bank assigns a "Sell" rating to Novozymes, Croda, Solvay and Lanxess, saying that "the former two Sells are valuation driven; we believe these are all high quality businesses."

Croda added 32 percent last year, but has already lost 3.4 percent at the beginning of 2013. It trades at a Price to earnings (P/E) ratio of 17.1, compared to a peer median of 16.7, according to Thomson Reuters data. Novozymes still trades at a P/E ratio of 23.9 despite losing 10 percent last year.

"For Solvay and Lanxess, we expect challenging markets will impact sentiment," the bank adds.

Citi downgrade Arkema to "Neutral" from "Buy," with the stock close to its target price, with the bank seeing limited scope for outperformance until the macro picture improves. Arkema loses 1.1 percent.

Reuters messaging rm://alistair.smout.thomsonreuters.com@reuters.net