Evonik Earnings: EBITDA Above Consensus but Significantly Below Prior Year on Weak Demand

No-moat Evonik EVK reported third-quarter EBITDA of EUR 485 million, down 21% versus 2022 but 8% higher than the second quarter and 6% above Vara consensus. The year-on-year decline was mainly driven by continued weak demand for its specialty additives and smart materials segments. However, Evonik made progress toward achieving its cost-saving target of EUR 250 million for the year, currently reaching the 70% mark. Guidance for 2023 EBITDA of EUR 1.6 billion-EUR 1.8 billion was confirmed. We don’t expect to make a material change to our forecast of EUR 25 fair value estimate. At current levels, the shares look undervalued.

The volume development improved sequentially to negative 5% in the third quarter compared with negative 11% in the first half. Still, the price contribution to growth deteriorated to negative 6% in the third quarter compared with negative 1% in the first half due to a decline in selling prices as lower raw material costs were passed on to consumers.

Volumes declined across most segments, except for the nutrition and care segment, which managed to achieve a 5% increase in volumes. However, this growth was offset by a notable 10% price decline. The smart materials segment experienced the most significant downturn, with a substantial 12% decrease in volumes, driven by weakened demand across all market segments. Performance materials also faced challenges, with a 4% reduction in volumes and a 9% price deterioration, primarily due to sluggish downstream demand for its C4 products. Meanwhile, Specialty Additives grappled with an 11% volume decline, resulting from a combination of factors including weak end-customer demand, ongoing destocking in some regions, and increased exports from Asia into Europe and the United States. As a consequence of these developments, the 2023 EBITDA guidance for the specialty additives segment has been revised to indicate a performance “significantly lower than the previous year,” as opposed to “considerably lower.”