Umicore Battery Materials strategic review key to the equity story

Umicore is in a tough spot, with Automotive Catalysis operating in a structurally declining market, Recycling being a cyclical and metal price-sensitive business and Battery Materials, previously considered as the future growth engine, now subject of a strategic review amidst slowing EV adoption and Chinese competition with lower priced LFP. Staying active in Battery Materials is of major importance to the equity story and we expect the upcoming CMD to confirm this stance, albeit with significantly reduced ambitions and a smaller production footprint limited to Europe and South Korea. As Battery Materials earnings are likely to remain under pressure in the short term, it may be hard to convince the market on the merit of such a strategic choice as the pay-back would only become visible a few years down the road. However, in light of the hammered share price, we believe valuation is attractive, as evidenced by a peer multiples comparison, DCF and the growing discount between the share price and our metal price basket (which historically have shown a high correlation). We decided to maintain an Accumulate rating, albeit with a target price trimmed down from € 14 to € 13.