Report
Rob Hales
EUR 850.00 For Business Accounts Only

Morningstar | Solvay’s 1Q in Line but Guidance Downgraded; Shares Fairly Valued

No-moat Solvay's first-quarter EBITDA was up 2.4% over 2018, excluding the IFRS 16 impact, but down 0.6% organically. Results were broadly in line with consensus. However, citing a deteriorating macroeconomic environment in the second quarter, Solvay reduced 2019 guidance to flat-to-modestly-down organic EBITDA growth, from “modest growth” previously. Shares reacted negatively, trading down 6% intraday. We were already forecasting a decline in EBITDA in 2019 so we don’t expect to make a material change to our EUR 100 fair value estimate. At current levels, the shares look fairly valued.

EBITDA in advanced materials was down 1.8% versus 2018 or down 5.7% organically. Weakness primarily resided in specialty polymers, where volumes fell 10%. Electronics drove the decline as investments in semiconductors fell significantly and demand for  components used in smart devices, continued to fall. Demand in the automotive sector is also down, with falling production, exacerbated by temporary destocking. In contrast, composite materials was exceptionally strong with 20% volume growth because of ongoing aerospace demand related to the LEAP engine, 787 Dreamliner, and F-35 Joint Strike Fighter.

In advanced formulations, EBITDA was flat versus 2018 or down 4.4% organically. Reduced activity in North American shale oil and gas is the main source of weakness, in line with our view. However, agriculture and industrial volumes were also down in Novecare. Mining remained supportive in technology solutions while demand for polymer additives was lower because of the soft automotive sector.

Performance chemicals is now the strongest segment, with 11% EBITDA growth versus 2018, or 7.4% organic growth. Better prices for soda ash was the key driver while performance in peroxides was also solid with flat volumes and higher prices, mainly in Europe. New soda-ash capacities in the market are not affecting Solvay as much as we thought. Consequently, we are likely to upgrade this forecast.
Underlying
Solvay SA

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).

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Rob Hales

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