Evonik Earnings: 2023 Outlook Is Confirmed Despite EBITDA Declining Across All Segments

No-moat Evonik EVK reported a difficult first quarter, with EBITDA of EUR 409 million, down 44% over 2022 but slightly above Vara consensus. The decrease was mainly due to volume declines of 14% across all segments with customers still destocking. Earnings for next quarter are expected to improve, therefore management is still confident in its outlook for 2023 but expects adjusted EBITDA to be at the lower range of EUR 2.1 billion-EUR 2.4 billion, mainly due to falling prices for the animal feed additive methionine and for products of the C4 chain. This is still in line with our forecast, so we don’t expect to make a material change to our forecast or EUR 25 fair value estimate. At current levels, the shares look undervalued.

Prices increased only 3% in the quarter, driven by specialty additives and smart materials—this partly offset some of the volumes lost and compensated for inflation effects. Management is also taking divestment measures and is targeting cost savings of EUR 250 million by the end of the year to address cashflow challenges. The first step in the divestment of the performance materials division was the sale of the site in Luelsdorf. The divestment of the superabsorbents business is underway.

Nutrition and care faced the highest decline in EBITDA at negative 66%, followed by specialty additives at negative 33% and smart materials at negative 23%. Lower-than-expected demand of animal protein in China and Brazil negatively impacted nutrition and care EBITDA, as markets continue to struggle with price declines, faster than decreasing raw material prices. Performance materials was mainly impacted by lower volumes across the C4 chain due to weak customer end markets (plastics, rubber, construction). Smart materials partially compensated broad-based volume declines, except for high-performance polymers, with strong pricing at 10% across all businesses.