N.A. Chems & Pkg "The Daily InSpector; Feedback on recent rating changes..."

Research evidence excerpt

N.A. Chems & Pkg "The Daily InSpector; Feedback on recent rating changes..."

e next 6-12 months. SHW reflected our change in +1-212-713 4312

view of expectations for housing markets to now be lower for longer, plus some

Nicole Grueneberg debates regarding capital allocation.

Associate Analyst

We go through more specific feedback and pushback below. nicole.grueneberg@ubs.com

+1-212-713-2469

ECL: Upgraded to Buy

We have received and continue to receive the most questions on ECL within the

group.

Pushback to our call: 1) ECL overpaid for CoolIT & growth is not certain. The deal

is initially dilutive and creates 2H downside risk if closed early (consensus bakes

into 4Q, not entirely in 3Q, but depends on deal close timing). 2) A related factor -

does ECL's business see a negative shift with more equipment exposure from

CoolIT and Ovivo acquisitions? It may not reprice and could be more cyclical, even

though it is higher growth now. 3) Risks around lower consumer volumes in

Institutional, either through weaker end markets and risks of share loss with higher

pricing. 4) Margin risk if either raw materials move higher than plan (2H risk), or if

pricing gains are not held (our upside margin call could be at risk.

Our response: 1/2) CoolIT & Ovivo provide anchor exposure to data centers and

semiconductor fabs, respectively. Our channel checks (incl. data center expert call

yesterday - replay available on request), indicate that CoolIT is growing similar to

the market, and fluid management is becoming a pain point for hyper scalers (see

takeaways here - link). This speaks to the value that ECL can bring to data center

customers. We think this means there is a strong opportunity to cross sell, and gain