On December 23, 2016, PPG Industries (PPG) announced that it entered an agreement with Knauf International to sell assets from its Mexico-based Plaka plasterboard and cement board business. PPG Industries acquired the Plaka business as part of PPG’s Comex acquisition in 2014 for $2.3 billion.
The Plaka business reported revenue of ~$30 million for 2015. However, PPG Industries didn’t disclose the financial terms of the deal. PPG expects the deal to be completed in the first half of 2017.
Why did PPG divest Plaka business?
One of the visions of PPG is to be the world’s leading coating company. To achieve this goal, PPG has been discarding all its non-core business. PPG Industries has gotten rid of the majority of its glass segment with the exception of a small piece of its US and Canada fiber glass business. Plaka, which manufactures plasterboard, cement board, and drywall doesn’t fit into PPG’s portfolio, which is why PPG decided to divest the Plaka business.
The divestiture of the Plaka business will likely dent PPG’s revenue by ~2%. However, the impact will be reflective of PPG’s revenue once the deal is completed in the first half of 2017.
PPG’s stock price
As of December 23, 2016, PPG Industries closed at $94.69 and dropped 1.3% for the week. The Materials Select Sector SPDR ETF (XLB), which holds 4.0% in PPG as of December 23, also dropped 0.3% for the week and closed at $50.27. PPG peers Sherwin-Williams (SHW) and RPM International (RPM) rose 0.2% and 0.7%, respectively, while Valspar (VAL) dropped 1% due to lower-than-expected 4Q16 earnings. For a complete analysis of 4Q16 earnings, read Valspar Announces 4Q16 Results: Last One before the Merger?
PPG’s stock price closed 4.3% lower than the 100-day moving average price of $99.00. The 100-day moving average price has dropped from $102.75 on November 1, 2016, to $99.00 as of December 23, 2016, indicating a downward trend in the stock. Analysts expect PPG’s 12-month target price to be $110.40, implying a potential return of ~16.6% over the closing price of December 23, 2016. On a year-to-date basis, PPG has dropped 4.2%.
Source: Market Realist
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