Solvay Separation to increasingly come into focus – upgrade to BUY
We upgrade our rating from Accumulate to BUY with target price upped from € 135 to € 155. The upgrade comes on the back of a decision to eliminate the 15% conglomerate discount we were previously using in our DCF & Sum-of-the-Parts models as we feel this discount is no longer warranted given that the planned separation of the company is coming closer. We believe the separation will be an important catalyst to unlock shareholder value. Under the helm of CEO Ilham Kadri, Solvay has made a significant step up in performance, with ROCE's increasing by almost 5pp in 2022 alone to 16% and leverage gradually reduced in the past few years to 1.1x. Beyond the heavy capex year 2023, we forecast annual FCF on group level at over € 1bn in the coming years. The strengthened balance sheet and solid FCF generation should allow both EssentialCo and SpecialtyCo to start with a strong balance sheet and sizeable firepower for actively pursuing growth opportunities.Solvay is engaged in chemical and plastic businesses worldwide. Co. offers chemical products such as advanced materials, barium strontium, calcium chloride, caustic soda, chlorinated products, fluor, peroxygen products, polyglycerols, precipitated calcium carbonate, soda ash, and sodium bicarbonate. It also provides specialty polymers, such as Spire ultra polymers, Solviva biomaterials, and sulfone polymers. Co. structures its activities around five operating segments: Advanced Formulations, Advanced Materials, Performance Chemicals, Functional Polymers and Corporate & Business Services, each with its own specific business model and each comprised of Global Business Units (GBUs).
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