Solvay Earnings: EBITDA Declines, With Chemicals and Solutions Below Vara Consensus

No-moat Solvay SOLB reported second-quarter EBITDA of EUR 790 million, down 8.6% over 2022, but 300 basis points above Vara consensus overall; however, at a segment level chemicals and solutions were below. The decline in results was primarily attributed to reduced volumes, stemming from weaker demand across various end markets such as batteries/automotive, construction, and consumer-driven industries. However, the company anticipates that volumes will stabilize or potentially experience a modest recovery in the second half of the year. Additionally, Solvay remains committed to achieving structural cost savings, already reaching EUR 502 million, which is 1.5 years ahead of their targeted 2024 goal. Consequently, the company reiterates its full-year 2023 EBITDA guidance, expecting it to be around EUR 2.9 billion to EUR 3.1 billion. Despite experiencing a temporary 3% decline in shares during intraday trading, our fair value estimate of EUR 120 is not expected to undergo significant changes. At current levels, the shares appear to be undervalued.

The solutions segment experienced the most significant EBITDA decline, dropping by 42%. This decline was primarily attributed to reduced volumes resulting from customer destocking and intense competition within the flavors and fragrances markets. In the chemicals division, EBITDA decreased by a modest 2.3% compared with second-quarter 2022. This was partially mitigated by higher prices and reduced variable costs, which offset the impact of lower volumes in coatis, silica, and peroxides. In contrast, the materials segment witnessed a 7.2% increase in EBITDA, driven by higher prices and volumes in composite materials, fueled by the ongoing recovery in the aerospace market.