Covestro Earnings: EBITDA Declined, but in Line With Vara Consensus; Resumes Share Buyback

No-moat Covestro 1COV reported second-quarter EBITDA of EUR 385 million, a 30% decline compared with the previous year, which aligns closely with Vara consensus estimates. This drop was primarily due to a significant decrease in prices, a result of an unfavorable supply-demand situation and lower volumes caused by product mix effects. However, there was a partial offset from the positive developments in raw material and energy costs. Management confirmed their expectations for 2023, but they anticipate results to fall within the lower range of the provided guidance, with EBITDA projected to be between EUR 1.1 billion and EUR 1.6 billion. The company announced the share buyback program will be resumed and investors reacted positively with an intraday 2% price increase. Our current EBITDA estimate is generally consistent with this outlook, leading us to believe that there will likely be no significant alteration to our fair value estimate of EUR 52. Shares currently appear to be fairly valued.

EBITDA declined by 17% in the performance materials segment, primarily driven by pricing factors, while the solutions and specialties segment had a 12% decrease. Overall, the company’s performance was further influenced by reduced demand in both the North America and Europe, Middle East, and Africa regions. Nevertheless, positive developments in China and the automobile end market provided some support for the results.