EUR 850.00 For Business Accounts Only

Morningstar | Evonik Reports In-Line 1Q; Shares Fairly Valued

No-moat Evonik Industries reported first-quarter results that were in line with consensus. EBITDA of EUR 539 million was down 3% over 2018 due primarily to weaker results in nutrition and care. The more industrial-focused resource efficiency segment reported modest growth in EBITDA despite the challenging macro environment. Evonik upgraded its 2019 guidance, but this mainly reflects adjustments after the sale of the methacrylates business, which is now excluded from continuing operations. Evonik now expects 2019 EBITDA to be at least stable, compared with previous guidance of slightly lower or stable. We don’t expect to make material changes to our forecast or our EUR 29.50 fair value estimate. At current levels, the shares look fairly valued.

EBITDA was down 14% over 2018 in nutrition and care. This is below our expectations for the full year, but the phasing of earnings in healthcare should lead to a stronger second half. The segment was also burdened by ramp-up costs for the methionine plant and lower methionine prices as the market reacts to increased capacity in the market.

In resource efficiency, EBITDA was up 2% despite subdued demand in automotive and coatings, although the artificial effect of IFRS 16 flatters EBITDA growth. The segment continues to show good evidence of moatworthy characteristics. Surprisingly, demand for Evonik’s PA12 high-performance polymers were reported to be strong, even in automotive. This is in stark contrast to Solvay, which reported a sharp drop in volume for its specialty polymers business in the first quarter.

EBITDA was down 9% in performance materials due to limited raw material availability caused by temporary production issues at a supplier site. In addition, MTBE prices were down due to destocking in the European gasoline market. Performance should improve in the second quarter as supplier production issues have been resolved.