AZ Electronic Materials SA (AZEM), a supplier of chemicals used in devices such as Apple Inc. (AAPL)’s iPad, fell the most since its October 2010 London listing after saying earnings margins will be below normal levels this year.
AZ shares dropped as much as 30 percent to 258 pence, losing 417 million pounds ($638 million) in value at 11:31 a.m. and making it the biggest decliner on the FTSE 350 Index. (NMX) Goldman Sachs Group Inc. cut earnings estimates and its price target for the Luxembourg-based company after AZ said today its IC materials business will probably perform below company expectations in the first half.
“AZ is facing some company-specific challenges and given the reset required to estimates, we expect the stock will come under significant pressure today,” UBS AG said in a separate note. Today’s profit warning is “unexpected” and the margin outlook “significantly below expectations,” UBS said.
AZ, whose materials allow smartphone and tablet PC makers to shrink electronics, said lower-than-expected sales at its IC business in the first quarter were compounded by increased pressure from dual sourcing by some customers. Sales will be about the same level as last year’s $794 million, the company said.
Goldman Sachs lowered its 12-month price estimate for AZ to 400 pence from 440 pence and cut its full-year revenue estimate by 4 percent. The company’s margin on earnings before interest, taxes, depreciation, and amortization for the first half will probably be under 30 percent, AZ said. Goldman lowered its full- year Ebitda margin estimate to 30.5 percent from 33 percent.
Sales at AZ’s IC Materials business in the first quarter declined 7 percent to $123.4 million. Revenue at its optronics business increased 9 percent to $56.5 million as it benefited from new customers.
Revenue growth and the Ebitda margin are expected to improve as the year progresses and remain “weighted to the second half,” AZ said.
Share-price weakness provides “a good entry point into a strong secular long-term growth story in chemicals,” Goldman said. The bank recommends buying the shares.
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