Evonik Earnings: Modified 2023 Outlook for Divisions; EBITDA Declines Across All Segments

No-moat Evonik EVK reported second-quarter EBITDA of EUR 450 million, down 38% versus 2022 but in line with Vara consensus. The results were affected by significant volume declines across divisions, except nutrition and care, where volume turned positive for the first time in four quarters. Management maintained its outlook for 2023 after the cut it already made before the release. It confirmed guidance for EBITDA of EUR 1.6 billion-EUR 1.8 billion with the consensus targeting EUR 1.9 billion. With around 50% of guided EBITDA achieved in the first half, the second-half performance is implied to be at the same level. Contingency measures are on track to achieve the full effect of EUR 250 million in second half. Our 2023 EBITDA outlook for EUR 1.7 billion remains in line with guidance and below consensus, 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.

Forecasts for the divisions in 2023 have been modified, except for performance materials. EBITDA in both specialty additives and smart materials is expected to be considerably lower than 2022 (previously stable and slightly higher, respectively). EBITDA for performance materials is anticipated to be significantly lower than 2022.

Performance materials had the biggest decline in the quarter, with EBITDA down 68% over 2022 on weak end markets across the C4 business. The nutrition and care division saw a notable 62% decline, largely influenced by customer destocking in the care solutions base business and reduced prices in the animal nutrition sector. The smart materials segment encountered a 44% decrease, largely due to weak demand, particularly in the inorganics sector. The specialty additives segment faced weak demand and destocking, which led to a 24% decline in EBITDA.