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Key takeaways The key comment on the call for 2025 was management''s suggestion that 3Q EBITDA is likely to be similar to 2Q (EUR114m). Current Bloomberg consensus is for EUR141m though is likely stale. Based on last year''s seasonality, with a EUR20m lower carbon compensation payment expected in 4Q YoY, we believe this implies FY EBITDA between EUR570-590m vs current consensus EUR654m (also likely stale). They are yet to see any improvement in order books, with July running at the depressed levels they have seen since mid-May. On the positive side, the company are looking to reduce costs in both capex and opex from here, though we note that headcount still increased by 70 positions in 2Q - this seems to be hiring of staff to run new capacities. Unsurprisingly there was a focus on the outlook for polysilicon, and the shares spiked considerably higher at one point today on a news article quoting GCL, discussing 1mt of closures of Chinese polysilicon capacity. We expect polysilicon demand to be around 1.3mt in 2025, so in our view a reduction from c.3.2mt global capacity currently to c.2.2mt still leaves substantial overcapacity. Furthermore, given the wide differential between Chinese variable costs of around $5/kg and Wacker''s variable costs of $12-13/kg, by our estimate, a price equating to a 20% EBITDA margin for Wacker would imply 60-70% EBITDA margins for Chinese producers; which may ultimately incentivise the start-up of the 2mt worth of projects which have been announced but not yet built. On balance, we still think Wacker presents greater earnings risk into 2026 than peers, largely due to structural headwinds in polysilicon; and this longer-dated earnings risk is the driver behind our Underperform rating.
Wacker Chemie AG
What happened? . Wacker had already released a detailed pre-announcement; they are confirming EBITDA in line with this at EUR114m . Excluding one-off benefit, Silicones EBITDA was likely c.9% below consensus and flat YoY . Polymers EBITDA was 5% below consensus, -32% YoY . Biosolutions EBITDA was EUR3m below consensus, EUR4m higher YoY . Polysilicon EBITDA was EUR13m ahead of consensus, EUR21m lower YoY. Interestingly the company disclosed that semi-grade grew more than 30% in 1H, before the start-up of their new Burghausen etching capacity . Q2 net cash flow of -EUR137m compares to -EUR179m in Q224 and consensus -EUR118m, with the prior year figure dragged by inventory build in Polysilicon. It''s not clear that consensus has updated yet to reflect new guidance of ''balanced'' FCF in 2025 so this may be a stale comparison . Net debt of EUR1,139m compares to EUR880m at the end of Q1, and EUR661m at the end of 2Q24; equivalent to 1.7x TTM EBITDA, which is the highest leverage Wacker have had in at least the last decade . Guidance was revised with the pre-release to EUR500-700m EBITDA vs consensus EUR660m, reconfirmed today BNPP Exane View: We expect questions on the call on 3Q trading so far, which will help investors to assess where in the very wide guidance range FY25 EBITDA might be. From our conversations with the company following the warning, we understand that they expect Polymers to pick up in H2, but Silicones is unlikely to see any improvement. Simplistically taking last year''s seasonality would imply FY of around EUR560m (extrapolating from 1H); a similar calculation using only 2Q gets you to c.EUR550m. Interpolating new segmental guidance gets you to around EUR615-625m, and we think the buyside expectation is around EUR600m, so there is potentially still scope for disappointment in 2025 - though increasingly we think conversations will turn to 2026, where we are 16% below consensus, largely due to our caution around the Polysilicon division. With 2026 increasingly in focus,...
What happened? Wacker Chemie just published an ad hoc revising their FY25 guidance down. They cite weak demand in Silicones and Polymers, coupled with unfavourable fx and uncertainty in the poly-si market. Key highlights from the release: . Q2 EBITDA expected at EUR114mn, below consensus of EUR121mn, slightly above our estimate of EUR108m but including a low DD insurance payment in Silicones (we assume c.EUR15m). So underlying c.EUR99m . FY25 EBITDA is now seen at EUR500-700mn down from EUR700-900mn previously. Vara consensus looks at EUR670mn. We believe their divisional guidance sums to c.EUR615-625m . FY25 sales expected at EUR5.5-5.9bn vs EUR6.1-6.4bn previously. Vara consensus at EUR5.8bn . Cash flow also seen at ''more or less balanced'' levels, vs previously ''positive, significantly higher than in the previous year. BNPP Exane View: Wacker''s guidance downgrade is in line with our expectations at the midpoint, given our FY estimate of around EUR592m, and they were one of the names we highlighted in our sector note as being likely to warn (see CHEMICALS: The summer of discontent). Having said this, there are still some surprises by division - assuming c.EUR15m insurance payment in Silicones, this division was flat YoY vs. +30% in Q1, a poor result given recent capacity additions. We understand that mix was a drag with a higher percentage of standards in Q2, which are selling at very weak prices currently. We would expect Silicones consensus to settle at around EUR345m for the year. Polymers and Biosolutions were broadly as expected, though Polymers was dragged by c.EUR15m shutdown impact (this was known already); hence the run rate should lift a little in H2. Polysilicon was higher than we had expected at EUR34m, vs our modelled EUR24m. The guidance for the second half suggests a lower run-rate, though speaking to IR we are not sure the EUR100m is meant to be taken as a point estimate- more an approximation which they could modestly beat. We still expect incremental pressure...
We see larger and longer lasting earnings downside for Wacker than peers, with a trough in Polysilicon not coming until 2027 by our estimates. In the near term, cyclical pressures are also building for the Silicones and Polymers businesses. We initiate at Underperform with a EUR52 TP. Earning pressure from all sides We think Wacker is entering a period of acute earnings pressure across three of their four business lines. We expect deflationary pressures in Silicones and a worse-than-expected volume drag in Polymers in H2, and for the trough in Polysilicon not to come until 2027, despite recent positive sentiment around solar pricing. At a group level we are 11%/16%/20% below consensus for 25/26/27, even factoring in a macro recovery in 2026. Macro recovery only solves part of the problem For the Silicones and Polymers divisions, the current malaise is likely solved by a macro recovery - however, we see Wacker''s Polysilicon division as structurally challenged, with production costs considerably above Chinese competition in solar, and incremental earnings headwinds coming in 2026/27 as short time work ends and contractual sales roll off. In the semi-grade business, we assume continued attractive pricing in our numbers but note that there are significant capacity additions due in 2026, which may present further downside risk to our estimates. Initiate at Underperform, EUR52 target price We initiate on Wacker at Underperform, as we see greater risk to earnings than for peers across the next three years. In 2025, this is cyclical and well flagged, but in 2026/27 consensus looks too high in Polysilicon in particular, so we expect earnings downside to last longer at Wacker than for other companies where downside is linked more to macro pressure. Our DCF-based target price of EUR52 implies 2026/27e EV/EBITDA of 5.5x and 5x respectively.
What did we learn? Wacker reported Q1 results yesterday. The highlights were a strong mix in Silicones leading to margins up +310bps YoY and a respectable Polysilicon run-rate, considering solar grade volumes weakness. Polymers and Biosolutions were more disappointing, with Polymers still suffering from anaemic construction activity and Biosolutions seeing some of last year''s projects roll off. We note the maintenance of guidance was more a function of lack of visibility on where to reset to than confidence in outlook. How does it change our view? Bulls might point to the fact that the Silicones order book, whilst increasingly volatile, has not necessarily declined and Wacker are still expecting a slightly higher Q2 vs a strong Q1 in this division; additionally, the new etching line starting in July could contribute EUR5-10m EBITDA to the quarterly run-rate in Polysilicon once fully ramped (on our estimates). Given some volumes are already contracted, the ramp may not take long. Bears might question how sustainable the current contractual minimum polysilicon solar sales are as contracts roll off, with new much higher AD/CVD rates on Southeast Asian countries, and ask whether Wacker need to write down the inventory they built and booked at cost last year. On balance, we think the shares are undervalued at 6x 2025 EBITDA given better upside optionality than most cyclical peers - but the continued uncertainty around whether that upside can be realised could hold the shares back in the near term. Changes to estimates - Outperform maintained We make minimal changes to EBITDA ests, though divisional mix changes in response to Q1 beats/ misses (see overleaf). We cut our EPS estimates primarily as a result of the large Q1 miss, which was on higher depreciation, interest cost and tax. Our EUR76 TP and O/P rating are unchanged.
What happened? Wacker are guiding to a slightly better performance sequentially in Polymers and Silicones, though we didn''t get the sense that there is much visibility in Silicones in particular with order input having become very volatile since mid-March. FX could become a translation drag in Q2 having been a tailwind in 1Q. Meanwhile for solar polysilicon, the fresh round of duties on SE Asian producers is likely to push out any recovery in volumes above contracted levels, and even if supply chains shift once again to Laos or Indonesia (as has been seen so far this year), the likelihood is that these countries will just be the next to be hit by duties. The route out is really for the US domestic solar industry to develop, which will take time. Semi-grade is looking more positive, and new etching capacity from July will help - but the semi business may struggle to support the fixed cost of under-utilised solar, particularly as the current contracted volumes come up for renewal (which we think starts from 2026 at the earliest). With limited visibility on macro or polysilicon, the shares could be caught in a holding pattern for the time being. Our full notes from the call are below. Key points Sequential demand evolution Q2 over Q1 - Silicones: Good demand in silicones but order entries more volatile - China remains weak with idle upstream capacities - expect to see a moderate seasonal uptick in Q2. Sequential demand evolution Q2 over Q1 - Polymers: order entry has not changed as much as in silicones - regional dynamics remains the same with parts of EU/US stronger than in China, weak overall Polysilicon - prices: still selling at ex-China price - customers still see benefit in purchasing US approved grades Upstream silicon weakness - not supportive as have to run plant at high utilisation and hence have dilutive effect on margin on standard products - Wacker focus remains on switching to more specialised product on which input cost...
What happened? Wacker reported Q1 2025 results today. Key points as follows: . EBITDA of EUR127m is 6% below consensus and 26% lower YoY . Segments: Polymers was surprisingly weak, which the company attributed to under-utilization and inventory effects, as well as weak construction markets. Biosolutions fell back to the pre-capacity payment run rate of EUR5m in the quarter, having achieved low to mid-teens per quarter in H2 last year. Polysilicon was comparatively stable at a low level, with strong semi volumes but persistently weak solar. The Silicones division only partially offset the weakness in the other divisions with EBITDA coming in 13% above consensus. Improved mix was evident in the 310bps YoY margin improvement. . Cash flows: Net cash flow came in at negative EUR165m vs negative EUR126m last year, showing a similar decline to EBITDA. Full year outlook: The FY25 EBITDA guide remains unchanged at EUR700-900m. Current consensus looks for EBITDA of EUR762m. On the segment level, guidance also remains unchanged. BNPP Exane View: When Wacker gave guidance of EUR135m for Q1 at their FY result in March, our perception was that this was a low-balled number with the company typically conservative, particularly early in the year. Unfortunately it appears that this guide wasn''t low enough. Unusually, Wacker have opted not to guide for the quarter ahead, though have maintained their full year range - this seems to be because the economic environment is making it impossible to set a new range, which combined with the lack of Q2 guidance is not reassuring. There is an unquantified inventory effect in Polymers, which may explain some of the miss - we await further clarity. However in the absence of more positive messaging on the call we would expect shares to underperform today. Call details See here to register for the call. For the webcast, please click here. Results vs consensus: / Source: Company data, BNP Paribas Exane Estimates, Vara consensus
We have adjusted our estimates following Q4, with higher FCF conversion from 2026, but slightly lower volumes for 2025. We do not consider the changes to be material; our rating is unchanged.
What happened? Wacker reported Q4 2024 results today. Key points as follows: . Q4 EBITDA came in at EUR279m, slightly below the EUR285mn they had pre released. Delta is likely to have come in the ''others'' line as all other divisions are in line with prev. reported numbers. . FY25 EBITDA guidance was introduced at EUR700-900mn, a 6% below Vara consensus of EUR854 as they see slightly lower pricing but considerably higher volumes. For Q1 - Wacker expects EBITDA of around EUR135mn, 11% below BBG consensus. BNPP Exane View: Given Wacker''s track record of conservative guidance, the FY25 EBITDA range of EUR700-EUR900m (6% below Vara consensus at the midpoint) is probably not a complete surprise. The risk today is that the Q1 guide of EUR135m, 11% below BBG consensus and 22% lower YoY despite a FY guide that implies growth in EBITDA at the midpoint, suggests either back-end weighting or that the guidance range isn''t as conservative as usual. Annualising EUR135m at 2024 seasonality would result in EUR600m for 2025 so there would seem to be some improvement baked in through the year. The low end of poly guide is still only EUR100m which is perhaps a disappointment when paired with comments on a considerable increase in semi-grade volumes expected. The saving grace might be lower capex guide of ''slightly above'' depreciation at EUR500m+ vs BBG consensus EUR565m, which will be taken well. On balance we would still expect shares to underperform today. Technically the CVD final determination in April could have been a potential clearing event for polysilicon uncertainty - but with tax credits on solar projects now potentially in flux we suspect this overhang will unfortunately remain for some time to come. Call details See here to register for the call. For the webcast, please click here. Key figures (BNPPe updated after pre-release) /
Cutting estimates to reflect current trading and updated model Following Wacker''s pre-release of FY24 results and updates to our model, we are reducing our estimates for FY25 and outer years to reflect current trends. Our new ''25 EBITDA estimate is in line with Vara consensus/ 3% below BBG/VA. Mixed outlook Q4 commentary suggested a good exit rate in specialty silicone volumes, with new capacities contributing and the company confirming that specialty volumes were +10% in 4Q. Given the slightly soft Polymers print and the division''s later-cycle characteristics - with volumes typically lagging construction starts by 8-9 months - we no longer expect much of a recovery in Polymers volumes or EBITDA for 2025. Biosolutions ended the year well and we expect the division to carry this strength into FY25, driven by annualization of the German ''pandemic readiness'' capacity payment, whilst Polysilicon is much harder to predict, with a wide range of scenarios possible based on outcomes of antidumping and countervailing duty rulings in the US (expected in April), the status of IRA production tax credits, and customer stocking behaviour. However, we note that availability of semi-grade polysilicon will improve incrementally YoY which could support earnings to a degree, whilst energy costs are largely hedged and expected to be c.EUR100m lower in FY25 at group level, which will mostly benefit Polysilicon. As usual, Wacker will set the guidance range for 2025 at their FY results on March 12th. TP cut to EUR85 (from EUR115) on lower earnings - Outperform reiterated We are reducing our TP by 26% to EUR85 to reflect our lowered estimates. We value the stock on an SOTP basis, with a slightly lowered group multiple of 6.6x 2025e EV/EBITDA (previously 6.8x). We maintain our Outperform rating and believe that the heightened uncertainty around Polysilicon is more than reflected in the 5x/4.4x EV/EBITDA multiple for FY25/26 and double-digit average FCF yield for the...
What happened? Wacker Chemie has just pre-released FY24Q4 earnings. Q4 EBITDA is EUR285m, c6% ahead of Vara consensus of EUR269m. On the segment level, Silicones and Biosolutions are in line, Polysilicon beat (EUR65m reported vs EUR48m consensus) and Polymers missed (EUR35m vs EUR44m consensus). The Other line beat by EUR10m. Key figures summarised below: . In Silicones, EBITDA came in at EUR65mn for Q4, 1% below Vara consensus. Wacker''s comments suggest better utilisation rates and better product mix in the division. . Polymers was a substantial miss on Q4, with EBITDA coming in at EUR35mn, 21% below consensus. . Polysilicon EBITDA was at EUR65mn for Q4, 35% above consensus. Recall this division includes a EUR30mn IRA contribution received in Q4. Wacker saw an increase in semiconductor volumes in 2024. . BioSolutions EBITDA maintained the strong performance of Q3, driven by biopharma business growth. . Net Cash Flow came in at negative EUR325m for FY24, impacted by a planned increase in working capital Wacker will report full FY results on 12th March where quantitative guidance will be provided BNPP Exane View: We see this prelim release as mixed, as despite better group EBITDA vs cons the mix will inevitably draw discussions towards consensus risks in 2025, particularly in the Polymers division. Earnings improved slightly QoQ in Polysilicon (ex the IRA payment) but commentary suggests continued uncertainty with final determinations on AD/CVD measures not expected until April. With shares underperforming the sector by c13% in the last month and c18% in the last 3 months, this is arguably in the price already.
What happened? On Friday, the US department of commerce announced preliminary duties on southeast Asian solar imports. The duties cover manufacturers in Vietnam, Cambodia, Malaysia and Thailand, some of which are customers of Wacker Chemie. There is a wide range on the announced duties with the maximum at 271.28% - see here for the full details. The anti dumping duties outlined on Friday follow countervailing duties announced at the start of October. The ADs are preliminary and a final determination will be made in April. BNPP Exane View: Tthe announced rates are higher than expectations coming into the event. It is worth noting that Jinko Solar (a known customer of Wacker Chemie) was hit with rates of 56.4% (in Vietnam) and 17.84% (in Malaysia) which aren''t as high as some other producers, albeit still high. The key now will be whether producers and customers ramp production back up with both the CVDs and ADs now known. We suspect this won''t be straight forward given the elevated rates while wacker''s out of china premium may come under pressure. With the stock near 4-year lows, we think the market was already ascribing a near zero valuation to the polysilicon business which may limit the impact of the AD headlines on the shares especially with performance in Chemicals showing signs of improvement at q3 and better run rate for FY25.
Q3 EBITDA miss driven by polymers and polysilicon Wacker reported Q3 24'' EBITDA of EUR152m, 6% below consensus, driven mostly by polymers and polysilicon. In polysilicon, performance was burdened by solar grade volumes driven by uncertainty created from the US AD/CVD investigations into southeast Asian solar players. Arguably, the bigger surprise came in polymers where EBITDA declined 23% sequentially having previously guided for a flat development. The driver was one off in nature with Wacker having faced a supplier force majeure in Ethylene. Cash flows were negative as expected due to higher capex and inventory investment. Silicones a bright spot Despite the group miss, Wacker''s Silicones business (c50% of group FY24e EBITDA) beat consensus expectations by 17%. Part of this will have been foreshadowed by the strong prints at Dow (NC) and Elkem (NC) last week, though Wacker''s continued recovery in Silicone Specialties is pleasing nonetheless. Assuming stable operating rates, we think the Q3 result in Silicones can go some way to providing support for FY25 consensus at the group level. Polysilicon uncertainty continues Wacker''s polysilicon business continues to be shrouded in uncertainty owing to a) the ongoing anti-dumping investigation (with clarity on CVDs having come in Oct) and b) the impact of the outcome of the US presidential race on the solar industry / IRA. Ultimately, at the current share price we do not think the market is factoring in any significant value for Wacker''s polysilicon business, which gives us some confidence that further downside on the shares is unlikely. Estimate changes We lower our FY24 EBITDA estimates by 3% (mostly on polysilicon) though leave our FY25 forecasts broadly unchanged. Our price target falls to EUR115 (previously EUR120), due to higher FY24 net debt.
What happened? Wacker reported Q3 2024 results today. Key points as follows: . EBITDA of EUR152m is 6% below consensus and on par with previous year and down 3% sequentially. . Segments: The miss was driven by the Polysilicon division, which came in 28% below consensus estimates, down 36% yoy, on the back of lower volumes. The Polymer division also disappointing vs expectations, coming in 21% below consensus, mostly impacted by a shutdown at a key European supplier. The Silicone division partially offset the weakness in the two other divisions with EBITDA coming in 17% above consensus, mainly benefiting from higher volumes. . Cash flows: Net cash flow came in at negative EUR99m vs EUR128m last year, on the back of higher investment in working capital. . Q4 outlook: FY guidance implies a Q4 of EUR266 at the midpoint. Note, Wacker will benefit form a CO2 rebate during Q4 which it has previously sized at between EUR100-150m. Current consensus sits at EUR283m. . Full year outlook: The FY24 EBITDA guide remains unchanged at EUR600-800m and Wacker expects it to be in the upper half of the range. Current consensus looks for EBITDA of EUR785m. BNPP Exane View: We think the Q3 weakness is likely to come as a surprise for many, notably in the context of a consensus that has come down into the print and an EBITDA that was last confirmed flat sequentially. Strength in Silicones is not a major surprise after the beats at Elkem / Dow last week. Upper end of the FY guidance implies a Q4 EBITDA at EUR266m (vs consensus at EUR276m). Note that the material sequential step up is mainly related to the CO2 rebate expected to come in Q4, implying underlying EBITDA (ex CO2 rebate contribution at c. EUR125m. We expect consensus to slightly come down for the FY as it starts baking in weaker contribution from Polysilicon (in context of ongoing antidumping investigation in the US). On FY25, current consensus looks for EUR994m. On the call, expect focus to be on Q4...
We have adjusted our estimates ahead of Wacker''s Q3 reporting (28th October). We lower our FY24/25 EPS estimates by an average of 3.6% owing mainly to the company''s Polysilicon business. Our price target falls to EUR120 (previously EUR124). We retain our Outperform rating on the shares. We do not consider the changes to be material; our rating is unchanged.
Q2: earnings solid, FCF soft Wacker Chemie reported Q2 EBITDA of EUR160m, 2% ahead of consensus expectations. Silicones performance impressed, beating consensus by c17% with speciality volumes recovering well. Polymers and Polysilicon EBITDA were in line with consensus. BioSolutions just about broke even, while the other line was marginally more negative vs consensus. FCF was negative, with working capital investment and higher capex more than offsetting the step up in earnings. Net debt increased to EUR661m, leaving leverage below 1x. Outlook: EBITDA seen towards the upper end of current range Management retained its FY24 EBITDA guide of EUR600-800m, though indicated that the upper end is now more likely. On the call, Wacker stopped short of pointing towards a sequential improvement in earnings. We found this surprising considering a) Silicone pricing and volumes should be up; b) Wacker will see materially higher EBITDA in Biosolutions as it starts to receive German reservation payments; and c) Polysilicon should benefit from higher plant utilisation. All in, we think Q3 EBITDA can reach EUR185m. In Q4, Wacker will receive a CO2 rebate in the range of EUR150m. Assuming an underlying seasonal decline, we forecast FY24 EBITDA at EUR835m (+7% vs consensus). Underperformance overdone Wacker''s shares came under pressure following the earnings release (and declined c5% during the conference call). We think the move was unwarranted and due to ambiguity around the Q3 guide. Ultimately, we think consensus should see upside in FY24. Polysilicon will continue to foster debate with SE Asian anti dumping duties set to be determined in Q3, though we think risks around an inventory write down are limited. We leave our FY24 EBITDA estimates broadly unchanged and reiterate our Outperform rating. Our price target is unchanged at EUR124.
We have adjusted our estimates ahead of Wacker Chemie''s Q2 reporting. We increase our FY24/25 EPS estimates by 3 / 4%. These upgrades relate mostly to Wacker''s Silicones business where performance looks to have improved through Q2. We increase our price target to EUR124 (previously EUR122) and retain our Outperform rating on the stock. We do not consider the changes to be material; our rating is unchanged.
Q1 EBITDA beats consensus, FCF soft Wacker reported Q1 EBITDA of EUR172m, 17% ahead of consensus. However, the beat was driven mostly by the other line, with Wacker''s ''core'' EBITDA around 3% ahead of consensus. On the segment level, Silicones drove most of this beat due to a step up in utilisation rates and associate income. Polymers and Polysilicon both missed consensus while BioSolutions was a small beat. FCF came under pressure due to working capital investment. No Q2 guide, but some building blocks in place Silicones is expected to see a decline in earnings owing to plant turnaround (we think this could have a EUR15m sequential impact). Management also suggested that the April order intake in Silicones was below the Q1 monthly average (albeit up y/y). At the same time, the beat on the other line from Q1 will likely be offset by a more negative result during Q2. Taking this into account, we forecast Q2 EBITDA to be down sequentially to EUR144m. FY guide still looks more than achievable While the Q1 beat may not translate into a Q2 upgrade, we still see Wacker''s FY guidance as conservative. This even more so the case with an air pocket of re-stocking seemingly emerging across Europe. Taking into account our H1 forecast, Q4 CO2 rebates (cEUR100m) and IRA + German govt payments, we think the upper end of current guidance (EUR600-800m) is easily achievable without a significant cyclical improvement. As such, we were surprised to see the shares down close to 5% intraday. Estimate changes We leave our FY24 earnings estimates relatively unchanged along with our price target of EUR122. We reiterate our Outperform rating on the shares.
FY24 guide in line with investor expectations, Q1 better than expected Management set the FY24 EBITDA guide at EUR600-800m. At the midpoint this is 10% below consensus though in line with rebased investor expectations. On Q1, Wacker pointed to EBITDA around the Q4 level (EUR135m) vs consensus at EUR110m. On the segment level, Wacker pointed to sequentially higher EBITDA in Silicones and Polymers and Polysilicon. The key swing factor sequentially is the other line which benefited from a cEUR100m carbon rebate during Q4. Run rate looks supportive and guidance looks well underpinned at the midpoint Taking Q1 as a run rate and adding another carbon rebate for Q4 24, the lower end of Wacker''s new guidance range looks well underpinned. Factoring in IRA credits and receipt of payments for the German pandemic preparedness plan, the mid-point also looks achievable. Crucially, this assumes no recovery in broader chemicals demand. We think risk is skewed towards Wacker achieving EUR800m of EBITDA in FY24 owing to a) significant operating leverage in Silicone where mix and volumes have been weak and b) further mix improvements in Polysilicon. Stacking up relatively well vs other diversifieds Wacker remains one of our preferred recovery plays within European industrial cyclicals. While management guided for negative FCF during FY24, the balance sheet is healthy (1x net debt / EBITDA ex pensions). At c7.8x FY24 EV/EBITDA, Wacker trades in line with the rest of the diversified space, albeit with a de-risked guide and substantial upside potential from both operating leverage and mix improvements. Changes to estimates Our FY24/25 EBITDA (ex assc income) estimates remain relatively unchanged. Our FY24/25 EPS estimates fall due to lower equity income from Siltronic. Our price target increases to EUR122 (from EUR115) due a rollover of our SOTP and higher multiples applied to Chemicals.
We spent two days on the road with Wacker Chemie''s CFO Dr. Tobias Ohler and IR Jorg Hoffmann in North America. Investor focus understandably honed in on de-stocking in Chemicals, pricing dynamics in polysilicon and ongoing discussions for state support. No green shoots in Chemicals as expected While management indicated that de-stocking has likely reached a trough in Silicones, underlying demand remains weak with little visibility around the order book (where lead times are now shorter vs pre pandemic). Softer mix in Silicones is expected to continue in to FY24. Downstream operating rates remain low and management will take a prudent approach to capacity expansions / capex as long as demand stays subdued. Polysilicon: pricing and politics Wacker reiterated its ambition to shift the entirety of polysilicon contracts to the ''out of China'' price by the end of FY24. On the topic of broader sate support, Wacker stated again that it will not engage in capacity expansions until commitments are made firm. Management sees some possibility for developments through November around a German Industry power price with the government set to finalise its budget for 2024. Separately, on Biosolutions, Wacker expects to benefit from the German pandemic preparedness plan next year following a period of investment. One of our favoured cyclical picks At c6.6x FY24 EV/EBITDA, we rate Wacker as one of our favoured European cyclicals. While Chemicals volumes remain soft, a recovery in downstream silicones will see mix improve and a tangible earnings recovery, in our view. On polysilicon, we continue to view the company''s Q4 guide as conservative and see support to consensus for FY24.
Q3 EBITDA marginally below consensus Wacker Chemie reported Q3 EBITDA of EUR152m, c3% below consensus. Silicones and Polymers were both in line (with consensus on the former having come down into the print). Polysilicon missed due to lower production with Wacker having put its US plant into planned maintenance. Free cash flows were cEUR127m, leaving trailing 12m leverage at near zero. FY guidance narrowed to the lower end Management narrowed its FY23 guide to EUR800-900m EBITDA (previously EUR0.8-1bn) vs consensus at EUR907m. The cut was driven mainly by Silicones with EBITDA now seen 21% lower and 16% below consensus. The new group guide implies a Q4 of EUR163m (+8% sequentially). On the segment level, Q4 EBITDA in Polysilicon is implied at EUR25m; this seems overly cautious to us considering a) volumes should be up sequentially and b) ASPs should be flat at worst considering Wacker prices at a lag. Arguably the Silicones guide for Q4 factors in some conservatism (at a 50% sequential drop), though the demand environment remains evidently tough. China, out of China and 2024... The key topic for investors revolves around Wacker''s efforts to shift its polysilicon contracts to an ''out of China'' price. Management has not disclosed mix as of yet. However, we estimate Q3 polysilicon ASPs at close to EUR18/kg which implies Wacker have made some progress in shifting volumes away from the China price. During FY24, we expect Wacker to make further progress which could yield additional upside to consensus. Estimate changes; Reiterate Outperform We lower our FY23/24 EBTIDA estimates by 3.5% on average. Our price target falls to EUR135 (previously EUR140). At 6.5x FY24 EV/EBITDA, Wacker now trades closer to the rest of the diversified sub sector. With the downgrade risk being lower vs peers for FY24, we reiterate our Outperform rating with the stock being one of our top picks in the cyclical chemicals space.
Q2 in line with pre-release Wacker reported Q2 numbers today having pre-released last week. Q2 EBITDA came in at EUR256m while FCF was EUR32.5m down from EUR62.4m last year. Underlying dynamics were as expected; Silicones EBITDA declined considerably y/y and sequentially on continued de-stocking, softness in standard pricing and lagging raw mat inflation. Polysilicon benefited from ''resilient'' semi volumes and prices while Polymer margins improved on lower inputs. BioSolutions did not breakeven for the 2nd quarter in a row due to upfront costs relating to the German pandemic preparedness plan. Outlook now looks sensible for FY23 We flagged in our July sector report that Wacker''s H2 weighted guide created risk for a guidance downgrade. The company''s new FY23 outlook for EUR0.8-1bn of EBITDA largely removes further downside risks for this year, in our view. In Chemicals the implied H2 EBITDA guide of EUR266m represents a level of earnings which Wacker has not undershot since 2015. Silicones in particular looks firmly at trough, and a recovery in EBITDA towards y/d looks plausible as high cost inventory is worked down. Polysilicon EBITDA is guided down considerably for H2; this is understandable given the decline in Chinese spot. However, we think Wacker''s ongoing efforts to renegotiate its solar contracts at a premium will stem further downgrades. Changes to estimates We lower our FY23 EBITDA (co defined estimate of EUR933m) estimates by 9%. Our FY24/25 estimates fall by a lower margin (2%). Our SOTP (FY24) based price target remains unchanged at EUR145. We retain our Outperform rating on the shares - Wacker remains one of the few European diversifieds we like on a 1yr+ time horizon (alongside Arkema).
An in line Q1 Wacker reported Q1 EBITDA of EUR281m, in line with consensus expectations. By segment, Silicones and BioSolutions were in line while a beat in Polymers offset a miss in Polysilicon. FCF is EUR49m, vs EUR181m last year and EUR28m in Q4. Management also left its full year sales guidance unchanged at EUR7-7.5bn and EBITDA range at EUR1.1-1.4bn. Q2 guidance suggests downside to quarterly consensus While management did not provide a quantitative guide on Q2, it did provide some colour on the conference call. In Silicones, Wacker April volumes may be down on March while the order book for May has yet to pick up. Wacker appears somewhat cautious on a recovery in June, though we think this could be conservative. All in, Silicones EBITDA is expected to only show a slight improvement. A similar message was also given for Polymers / Poly-si EBITDA. In combination with a negative result on the other line, this suggests Q2 EBITDA may only be modestly up on Q1, suggesting a c20% cut to consensus. FY guidance range still achievable, however Despite the Q2 cut, we remain confident that Wacker can hit its EBITDA guide for the FY. Pricing in Silicone ''specialties'' appears to have held up relatively well, which should bode well for a recovery in earnings once volumes inflect. Polysilicon will undoubtedly be hit by lower spot prices, though management made supportive comments around continued re negotiations on adding a quality / origin premium. Estimate changes; retain Outperform rating We lower our EBITDA estimates by c3% for FY23, relating mainly to our cuts on Q2. Our FY24/25 estimates are unchanged. We lower out price target to EUR165 (previously EUR170). Wacker remains one of favourite cyclicals. As we described in our recent note, Wacker can benefit from the US IRA and European equivalent package and help reframe the valuation debate around polysilicon.
The European IRA option The makeup of a European IRA equivalent has dominated the conversation around Wacker over the past 6 months. We think investors have now largely categorised Wacker as the key winner within the European Chemicals sector. YTD the stock has been one of the top performers within our coverage. While there is more detail to come around country level initiatives, we think Wacker''s shares are still worth looking at within the context of new legislation and broader energy transition. Polysilicon: Finally a new dawn? Wacker''s polysilicon business has often been a drag on the company''s valuation given its inherent volatility. However, the business could stand to be one of the key beneficiaries of new European legislation; both from increasing demand for solar installations and support on the cost side. Regarding the latter, ensuring the competitiveness of a re-shored European solar chain has been a key theme around the European IRA. An Industry power price may help Wacker move further down the global cost curve in polysilicon and bring midcycle earnings to a higher level. In our view, this could eventually drive a re-rating in polysilicon''s valuation (we currently value this at 5x FY23 EV/EBITDA in our SOTP). We do not build in any benefit from European legislation into our base case TP (EUR170). European and US optionality It is worth remembering that Wacker is one of the few stocks in European Chemicals (alongside Air Liquide) which is a clear beneficiary of both the US and European IRA packages. Wacker has a dominant share in both US and European polysilicon production with demand set to increase considerably in both regions. A solid story elsewhere We view the European IRA as an attractive investment theme for Wacker. We also like Wacker''s underlying equity story too and rank the stock as one of our most preferred recovery plays in European Chemicals. See THEMATIC RESEARCH: The EU IRA: Subsidise me! published today.
FY guidance supportive of expectations, dividend ahead of consensus Wacker reported full year results yesterday having pre released during early January. Management set its new EBITDA guidance range at EUR1.1-1.4bn. At the mid-point this was c5% below sellside consensus although above buyside expectations, in our view. Wacker also announced a EUR12/share dividend (48% payout ratio, +50% y/y), beating consensus by c5%. Q1 guide soft and point towards H2 improvement Management also provided a Q1 EBITDA guide of EUR250-280m. At the midpoint, this was c30% below consensus. Wacker indicated that it was still seeing de-stocking in Chemicals while polysilicon EBITDA will be down sequentially due to lower volumes. Continued weakness in Silicones isn''t too surprising following the company''s profit warning in January. However, management commented on the call that Speciality pricing remains firm; this suggests to us a sharp recovery in margins is possible if volumes rebound during H2. Furthermore, Wacker continues to re-evaluate its pricing model in polysilicon; this could help stem any headwinds from further declines in Chinese spot prices. The European IRA debate continues Management retained a firm message that funding is required to improve competitiveness of the European solar chain and enable energy transition. However, management stated that it would not risk sacrificing growth in Chemicals / BioSolutions through deploying capital in to polysilicon without firm customer commitments or a favourable regulatory back drop. Estimate changes; Retain Outperform We reduce our FY23/24 EBITDA estimates by c6% on the back of downgrades put through in Silicones. Our price target falls to EUR170/share from EUR175/share as a result. Wacker remains one of our preferred cyclicals; at c6x FY23 EV/EBITDA we see attractive value in the stock both as a recovery play and as through options around energy transition and growth in BioSolutions.
A mixed quarter ... Wacker reported Q3 EBITDA of EUR457m, 9% below consensus expectations (+2% y/y). The miss was broad based although Polysilicon drove most of the absolute underperformance. On the group level, volumes were down c2%, although Wacker was able to more than offset energy/raw material inflation with pricing. Free cash flows were strong at EUR293m (conversion of 64%). ...But a reassuring FY guide Management narrowed its full year guidance range to the upper end at EUR2.1-2.3bn vs 1.8-2.3bn previously. The old range assumed a headwind of EUR200-250m at the lower end to reflect potential gas curtailments - this has now been removed. On energy / raw mats, management now guides for an FY22 headwind of EUR1.3-1.4bn vs EUR1.5bn previously - this suggests a Q4 headwind of cEUR400m. At the new mid-point, Q4 EBITDA is implied at EUR473m, c30% ahead of consensus. The Q4 beat stems mainly from polysilicon due to a combination of lower energy costs and higher pricing. The outlook in Silicones / Polymers is softer, as expected. 2023 - risks are not insurmountable and relatively well understood The impact of new supply additions in the polysilicon market remains a key debate for investors. We factor a 38% decline in pricing during 2023 (vs spot) and believe concerns over a more material collapse to be overdone. There is understandable uncertainty around energy cost headwinds for next year, although we note Wacker is 2/3rds hedged and so far has exercised impressive pricing power across its portfolio. Estimate changes; Reiterate Outperform Our FY 22/23 EBITDA estimates do not change materially. However, our price target falls to EUR175 (previously EUR185) after discounting the 2023 multiples used in our SOTP based valuation to reflect the current interest rate and macro environment. We retain an Outperform rating on the shares.
Q2 robust as expected Wacker Chemie reported Q2 results having pre released during mid-June. EBITDA came in at EUR626m, c6% ahead of consensus. Each segment printed either in line or modestly below Q1 with momentum in demand and pricing having continued during the quarter. FCF came in at EUR63m, down y/y due to working capital headwinds. The group''s pension liability fell considerably to EEUR664m (EUR1.3bn at the end of Q1) due a higher discount rate, while Wacker remained in a net cash position. New guidance range ahead of expectations Management raised its FY22 EBITDA guidance range to EUR1.8-2.3bn from EUR1.2-1.5bn. The old guidance range had become rather stale with sell side consensus having moved to EUR1.8bn. The new mid-point looked supportive of buyside expectations which were closer to EUR2bn, in our view. Management also flagged a higher raw mat / energy headwind at EUR1.5bn with an additional headwind of EUR200-250m baked into the lower end of the guide. Worst fears quelled for now Management provided some comfort around its contingency plans on gas and reiterated that its Burghausen plant is considered system relevant which could allow gas supply to remain available. The quarterly impact of potential gas surcharges was quantified at around EUR20m. Wacker is hedged relatively well (2/3) on energy for 2023 - clearly there will be additional headwinds if level 3 results in these hedges opening up. In this scenario, we estimate a high double digit EURm headwind though note FX and continued strength in polysilicon prices could provide some offset. Estimate changes We increase our FY22/23 EBITDA (co-def) estimates by c4%. This leaves us 5% ahead of consensus for FY23. Our price target increases to EUR190 (Previously EUR188) and we retain our outperform rating the shares.
Outperform reiterated amid a volatile environment Wacker''s shares have been on a rollercoaster over the past 2 months. Management raised outlook for Q2 and the FY in June. However, optimism was tempered following renewed concerns over gas shortages in Europe and debate over a loosening demand / supply balance in polysilicon during 2023. On the latter, we think the market has underestimated mix shifts in Wacker''s portfolio and the scale of normalisation in polysilicon prices next year. Concerns around the former are valid albeit not insurmountable for Wacker, in our view. Q2 unsurprisingly stellar, FY may exceed EUR2bn - Q2 results due on 28 July Management raised its outlook for Q2 during mid-June, pointing towards EBITDA (inc assc) close to EUR600m or 20% ahead of consensus. Each operating segment was said to have performed in line with Q1. There are no big surprises here given the well flagged strength of the chemicals sector during Q2. For the full year, we forecast EBITDA of cEUR2.08bn - management will provide its new guide when it reports results on Thursday July 28th. Energy, demand and 2023 Wacker''s energy intensive production in Germany has come under scrutiny amid the European natural gas crisis. We estimate a potential quarterly headwind in the high double digit range from higher energy prices. However, we note there are levers Wacker can pull on pricing in chemicals, while the weaker Euro also provides a tailwind worth noting. Next year, we expect polysilicon prices to remain firm; demand for renewables tend to be robust during recessionary environments, while bumper solar installations may provide some offset to supply additions in China. Estimate changes We increase our FY22 EBITDA (inc assc) estimates by 23%, driven by upgrades in polysilicon and chemicals. Our FY23 EBITDA (inc assc) estimates edge up by c3%. We remain Outperform rated with a price target of EUR188.
Q1 robust, but beat largely telegraphed Wacker Chemie reported Q1 EBITDA of EUR644m, 9% ahead of sell side consensus. Expectations were already high coming into results with Wacker having given a bullish outlook on Q1 at full year results while other diversified Chemicals names also pre released strong numbers. Wacker''s Chemicals business displayed strong performance with sizeable price increases being put through in both Polymers and Silicones to compensate for raw material inflation. Polysilicon continued to be supported by elevated pricing which helped offset higher energy and silicon metal costs. FY EBITDA guidance left unchanged and looks very conservative Management increased its sales guidance to EUR7.5bn from EUR7bn. However, EBITDA guidance remained unchanged at EUR1.2-1.5bn (vs consensus EUR1.57bn) with management pointing towards a higher raw material headwind of EUR1.1bn (vs EUR1bn previously). Q2 EBITDA will likely decline sequentially on higher inflation (EUR100m sequentially); however, Wacker having put through significant pricing increases in Chemicals and demand holding up, we believe Q2 EBITDA of cEUR494m is achievable. This implies a significant drop in earnings is required during H2 to bring FY EBITDA to the upper end of Wacker''s guide. Retain Outperform on strong pricing power and medium term fundamentals While the war in Ukraine poses tangible risks to the German chemicals industry, we believe Wacker remains relatively well positioned on our base case. Management has displayed an impressive ability to exercise pricing power in Chemicals. Wacker is also positively exposed to the energy transition, a trend which could accelerate as a result of the current geopolitical crisis. In our black sky scenario, Wacker''s leverage also screens favourably versus the rest of the sector. Estimate changes We increase our FY22 EBITDA estimate by c8%. Our target price increases to EUR188 (EUR185 previously).
We understand that Wacker’s management had a difficult task after the strong start to the year. On one hand, we might have expected an upwards revision to the guidance and, on the other, the risks and uncertainties have increased in recent weeks and it would be negligent to ignore them. But investors have their own view, looking at the sharp share price drop. However, reported sales growth was +4.6% and EBITDA was +8.0% ahead of consensus.
Wacker reported a strong final quarter. In a nutshell, FY 2021 was an exceptional year pushing the proposed dividend to €8 per share, but business will soften in 2022. After the release of the preliminary figures in January, consensus was still beaten (sales: +0.9%; EBITDA: +5.8%; net income: +7.7%). We have already lowered our estimates in the light of skyrocketing energy and raw material prices, despite our strong view on the company.
New FY22 and Q1 guidance announced Wacker announced full year results yesterday and released new guidance for FY22. Management pointed towards FY EBITDA of EUR1.2-1.5bn, in line with pre results consensus at the midpoint. The guidance factors in a EUR1bn headwind from energy/ raw materials and is inclusive of equity income from Siltronic. During the call, management also indicated that Q1 margins are likely be flat sequentially, implying group EBITDA close to EUR600m for the quarter. With pricing increases having been put through in Wacker''s Chemicals business and volumes recovering sequentially, Q1 earnings should receive significant support. Outlook looks conservative Management''s comments on Q1 and the FY imply a material deceleration in earnings for the remainder of 2022. Silicones will see significant overearning during Q1 due to pricing increases put through by Wacker and hedging on silicon metal cost. Once these hedges rollover, margins in should see some normalisation into Q2. However, even when taking this into account, guidance looks conservative with pricing remaining strong in polysilicon and polymers well positioned to combat further inflation. There are clear tail risks from geopolitical events but as we described in our earlier note Wacker could benefit in the long term as Europe looks to reduce reliance on Russian gas. CMD on March 29th the next catalyst Management will hold a CMD on 29th March in London. We expect the focus to be on capital allocation and strategy. This will be an important catalyst for the shares, in our view, with Wacker having ample balance sheet headroom and a relatively new CEO at the helm. Estimate changes We increase our FY22/23 EBTIDA estimates by 11% and 1% respectively, relating mainly to Silicones and Polymers. Our target price increases to EUR185 (from EUR175) based on our 2023 SOTP based valuation.
Q4 EBITDA beats on continued outperformance in Silicones Wacker reported preliminary full year results yesterday following the company''s pre-release two weeks ago. At the time management raised FY EBITDA guidance to EUR1.5bn, c7% ahead of consensus. The beat was driven by Silicones where Wacker was able to generate much higher pricing than anticipated to help offset raw material inflation. Pension reform underway, capital allocation set to come under further examination Management also reported that it has kicked off a much-heralded reform of its pension deficit. During Q4, a EUR250m contribution was made to a CTA which helped bring the company''s pension liability down to EUR1.8bn vs EUR2.2bn at the end of Q3. With Wacker''s balance sheet looking healthier by the quarter its capital allocation policy will receive even more focus. Wacker will hold a CMD on 29th March where this topic will be covered. A collapse of the Siltronic deal isn''t necessarily a game changer GlobalWafers'' acquisition of Siltronic looks likely to fall through after the deal failed to pass German anti-trust hurdles. Wacker was set to receive cEUR1.3bn of proceeds from the sale of its 30.8% stake, further enhancing its already robust balance sheet. However, the absence of the proceeds will not preclude the company from investing organically into its CDMO business, or returning cash to shareholders while keeping leverage in check, as we outlined in our June 2021 report. FY22 guide the next catalyst, poly-si will move the needle (as expected) Management will provide FY22 guidance on 16th March. Current consensus is looking for cEUR1.2bn of EBITDA. We would not be surprised to see Wacker to guide conservatively given the range of outcomes on polysilicon pricing for H2. We trim our FY22/23 EBITDA forecasts by c2.5% mainly on higher inputs and cost inflation. Our price target falls to EUR175 from EUR180. With Wacker having executed a mix shift within its polysilicon...
Wacker released a set of additional figures which gave a better picture: 2021 was the best year since the IPO in 2006! EBITDA exceeded the 2010 record high, which had been not really in reach for many years. This strong performance was mainly driven by substantial profitability gains in Silicones and Polysilicones due to better prices. Despite management’s reluctance in providing an outlook so early in the year, it sees a continuation of the high demand in its product portfolio.
Wacker’s Q3 figures were a strong show of force in the P&L development. The performance left scratch-marks in the NWC inflows, which we believe will be patched up in Q4. Strong demand (1/3rd) and higher sales prices (2/3rds) were the drivers. Meanwhile Polysilicon’s business environment looks completely different compared to the beginning of the year with a strong positive effect on profitability, which has already forced us to take a positive stance.
Q3 EBITDA ahead of expectations, cash generation strong again Wacker Chemie reported Q3 EBITDA of EUR433.7m, c.12% ahead of consensus. The company had pre released in mid-September placing EBITDA at ''roughly'' EUR400m at the time. The beat was driven predominantly by Silicones and Polymers while Polysilicon was in line. Wacker also recorded an impressive quarter for cash generation. FCF came in at EUR426m implying a near 100% conversion from EBITDA, and helping to further cement Wacker''s net cash position. FY21 guidance remains unchanged Despite the beat on Q3, management left full year EBITDA guidance unchanged at EUR1.2-1.4bn, with current consensus sitting at EUR1.34bn. The new guide implies a weaker Q4 (EUR353m) vs consensus (EUR399m). Wacker guided for higher raw material headwinds at EUR400m (vs EUR300m) previously, which appears to have held management back from pointing towards the upper end of the range. FY21 guidance appears conservative, FY22 continues to shape up well While Wacker maintained its outlook, we still sit towards the upper end of the range and upgrade our FY21 EBITDA by c3%. We factor in sequential normalisation in Silicones and model in a Q4 Polysilicon EBITDA on par with Q3. With polysilicon prices finishing the year strongly, this bodes well for 1Q22 with Wacker typically realising prices on a 2-month lag. Furthermore, Wacker continues to increase prices in Silicones to offset silicon metal price inflation. Our FY22 estimates remain relatively unchanged. March 2022 CMD the next big catalyst In the run up to results, Wacker also confirmed a CMD in March 2022 where the company will lay out its new strategy. In our view, this will be crucial to deciphering management''s plans to grow its biopharma business which is a potential catalyst for midterm multiple expansion. We maintain our Outperform rating at a price target of EUR178.
Another guidance upgrade Wacker Chemie increased its FY21 guidance for the third time this year. Management now points towards FY21 EBITDA of EUR1.2-1.4bn (previously EUR0.9-1.1bn) and sales of cEUR6bn (previously EUR5.5bn). The new EBITDA guide is c5% ahead of sell side consensus, although likely closer to buyside estimates. Unsurprisingly, the bulk of the cEUR300m upgrade seems to have been driven by management de-risking is expectations on polysilicon prices during H2. Q3 EBITDA guided at EUR400m Management also provided guidance on Q3, pointing towards EBITDA of EUR400m (12% ahead of consensus). Sequentially, Q3 EBITDA growth appears to be evenly split between Chemicals (Polymers and Silicones) and Polysilicon. The midpoint of FY guidance therefore implies a Q4 close to EUR326m (12% ahead of consensus). At the upper end of FY guidance, Q4 is assumed to be on same level as Q3, inherently factoring in minimal normalisation in Chemicals and polysilicon. Raw material headwinds unchanged Wacker kept its FY forecast for a EUR300m raw material headwinds unchanged. Most of the components in the raw material basket have started to stabilise (eg VAM). One exception is silicon metal which has seen continued inflation over the past two months, although Wacker is relatively well hedged in the near term. Changes to estimates We increase our FY21/22 EBITDA estimates by c8% and increase our price target to EUR178 (from EUR170). We continue to believe that the polysilicon market will see higher lows and highs post 2021, reducing the risk of a sizeable reversion in earnings. At c7.4x FY22 EV/EBITDA, we also believe Wacker offers attractive optionality in the higher multiple CDMO space.
Despite the easy comparables, management increased its guidance once again, especially on the profitability level. The beat to consensus was not meaningful (top line: +2.5%; profitability: 0%), but the reported figures were above our expectations. Silicones was a quite nice surprise. Polysilcon seems to be on its way to historic heights.
Q2 in line, guidance looks very conservative Wacker Chemie reported Q2 EBITDA at EUR327m, in line with consensus and the company''s June pre-release. Polysilicon drove performance and was supported by continued momentum in WCH''s chemicals business with management able to successfully drive pricing in Polymers. FCF generation was very strong at EUR208m, leaving Wacker in a net cash position at the end of H1. Management left FY21 EBITDA guidance unchanged at EUR900-1,100bn choosing to maintain a cautious tone on Q4 polysilicon performance. The top end of guidance looks more than achievable On the conference call, management sounded confident on driving EBITDA closer to the upper end of the FY guidance range (EUR1.1bn) which is where consensus currently sits. Q3 appears to have picked up where Q2 finished with strong underlying demand persisting across each segment. Note that Q3 mono grade polysilicon prices have averaged cUSD28/kg so far and that WCH often sell at a 1-2 month lag. Taking this into account, we estimate Q3 EBITDA at EUR365m (vs consensus at EUR282m). While Q4 comes up against a good FY20 comp, a significant reversion in polysilicon prices versus spot is required to drive a decline in EBITDA y/y. Adding in further pricing increases in Polymers, we are confident that Wacker can earn close to EUR1.2bn EBITDA this year. EBITDA Estimates increase by 8% for FY21-23 Our EBITDA upgrades are driven by increases to our polysilicon forecasts for FY21/22. We believe a tangible reversion in pricing is unlikely next year owing to US sanctions on the Chinese solar industry. We also increase our estimates in Polymers and Silicones to reflect the continuation of strong underlying demand. Our target price increases to EUR170 (from EUR165). Wacker Chemie remains one of our top picks, owing to the stock''s strong near-term earnings momentum and exciting mid-term growth opportunities to grow in the biopharma space.
CMD largely educational but more clarity provided on Biosolutions potential Yesterday, Wacker Chemie hosted a CMD focused on its group RandD efforts and strategy within Biosolutions. Management re-iterated its EUR1bn sales target for Biosolutions but now indicates that it expects to achieve this by 2030 with the segment margin reaching 25%. The exact roadmap to achieve the EUR1bn of sales and capital required was not shared. However, a clearer indication on the timeframe and EBITDA potential should be taken as a positive in our view. A EUR2bn valuation is not implausible By 2030 the vast majority of Biosolutions should consist of Biopharma and Bioingredients activities which allow should Wacker to increase the margins towards 25% (vs 5yr average of c14%). This favourable mix shift should crystallise a higher valuation for the business. Hypothetically, building a case for Biosolutions to become a EUR2bn business is quite plausible. This assumes 2030 EBITDA is discounted back at 10.5% with a 22x valuation for Biopharma and 16x for Bioingredients. See our recent upgrade report for our views on WCH''s potential in biopharma. Increasing PT on higher Biosolutions valuation For the purposes of our FY22 SOTP based valuation, we value Biosolutions at EUR1.5bn, given the majority of mix shift is yet to crystallise. Initially, we expected Wacker to reach EUR250m post 2030. We factor in expedited growth in Biopharma along with increasing comparable valuations; peer Aldevron was sold to Danaher in a deal worth USD9.6bn. This leaves our segment valuation at c24.6x FY22 EBITDA (vs 17x previously), which results in our price target increasing to EUR165 from EUR155. Sanctions looking more likely in polysilicon While polysilicon prices dipped on Wednesday, Wacker''s shares continue to receive near-term support from reports of a US ban on Chinese solar products. Yesterday the Biden administration blocked solar imports from Hoshine while adding...
Management''s new guidance failed to inspire. However, earnings momentum should continue to move in the right direction. Wacker Chemie is also in a position to embark on a new growth strategy. We upgrade the shares to Outperform and increase our TP to EUR155 (from EUR 124). FY21 guidance raise in line; we see tight conditions persisting into 2022 Management''s guidance raise last week confirmed EBITDA expectations for FY21. This has led to questions on whether the momentum in WCH''s shares has reached a crescendo. With pricing power returning and supply chains still tight, we believe risk is skewed to the upside in Polymers and Silicones for H2. We are positive on Polysilicon into FY22, which will help WCH sustain EBITDA at above mid-cycle levels. We are c8% ahead of consensus EBITDA for FY21/22/23. Polysilicon tightness could persist into 2022 Political pressure is increasing in the US to take more stringent action on Chinese polysilicon producers over human rights violations. As a result, we see a greater likelihood of tight market conditions persisting. While spot momentum may fade, we forecast minimal normalisation of WCH''s polysilicon EBITDA going into FY22 and are 24% ahead of consensus for the segment. Chemicals: pricing tailwinds and positive demand trends WCH''s Q2 pre-release illustrated management''s ability to partially offset raw mat. inflation with price increases and support margins in Polymers. The near term demand backdrop in both Polymers and Silicones continues to look positive. Secular growth drivers in the construction industry can support mid-term performance, in our view. Exciting opportunities for capital deployment With new CEO Dr. Christian Hartel at the helm and proceeds from the Siltronic disposal on the way, we see value accretive opportunities for WCH to allocate cash. WCH''s CDMO business will likely be an area of focus, and rightly so. Management will hold a CMD on 24 June where we expect to hear more...
Q1 numbers offer little inspiration Wacker Chemie reported a 7% headline beat on Q1 EBITDA. However, outperformance was driven predominately by a greater than expected contribution from the ''other'' line which offset a miss in polysilicon. Polymers and Silicones registered smaller absolute beats, while Biosolutions was in line. The miss in polysilicon was driven by a combination of Wacker selling forward at lower January prices and inventory drawdowns. Dynamics in the Chemicals business were largely unsurprising with raw material inflation and FX headwinds eating away at volume growth. Guidance continues to suggest prudence over realism Management issued new FY 21 EBITDA guidance for 15-25% growth. At the midpoint, this implies cEUR800m which is c13% below sell side consensus and likely further below buyside expectations. Within Chemicals, management continued to flag raw material inflation and now see a headwind EUR200m for the group (vs EUR100m previously). Consensus is already forecasting polymer margins at 14% for FY21, below Wacker''s previous guidance for 15-18%. This leaves polysilicon guidance as the most significant delta vs expectations. With polysilicon prices having increased c30% since mid-march and tightness likely to persist in the near term, we believe Wacker''s FY21 EBITDA margin guidance errs more on the side of caution. Changes to estimates Despite implied downgrade from Wacker''s guidance adjustment, our EBITDA estimates increase by c3%, relating predominately to polysilicon and silicones upgrades. This leaves us c7% ahead of FY21 guidance at the midpoint but c5% below pre results consensus. It is worth noting that at current spot polysilicon prices (mono grade at cUSD20/kg), Wacker Chemie comfortably generates USD1bn of run rate EBITDA, all else equal. We believe the market will continue to perceive Wacker''s guidance as conservative, which offers little upside potential to stock''s current valuation (c10x FY21...
Wacker, like its peers, had a head start into beating its own rough guidance as well as our expectations and consensus, which was mainly attributable to significantly higher volumes as the passing on of higher raw material prices did not make a meaningful contribution. The top-line development helped the profitability line, which was additionally supported by the ongoing cost-cutting programme. As we felt a certain conservatism in the earlier guidance, it looks to us as if management has greater visibility to upgrade guidance.
Guidance: cautious or conservative? Management guided for FY21 EBITDA growth of 10-20%, implying underlying EBITDA close to EUR768m for 2021 (c13% below consensus). For 1Q, management guided for EUR1.3bn of sales and EBITDA to be significantly higher vs the prior year, which was in line with expectations. Arguably, guidance looks conservative on polysilicon, with management stating that 4Q earnings can be taken as a run rate for 2021, despite spot pricing rallying 40% ytd. Raw material headwinds in chemicals were not a major surprise. However, the scale of margin erosion guided for in Polymers appeared rather sobering. We see some upside to management''s guidance, mainly in polysilicon. However, visibility on Wacker''s ability to fully offset raw material inflation remains limited, while questions still persist on capital allocation. We remain Neutral rated on the shares. We forecast FY21 EBITDA towards the upper end of guidance We cut our adj EBITDA estimates (excl equity income) by c6% to cEUR813m. Our price target falls from EUR120 to EUR113 as a result. The majority of our earnings downgrades relate to Polymers (c18%) and Silicones (12%) as we assume greater margin erosion due to raw material cost headwinds. This is partially offset by higher estimates in polysilicon as we increase our pricing assumptions for H1; we assume some normalisation from current spot during H2. Management indicated that Biosolutions will be H2 weighted due to higher ramp and integration costs; we forecast c10% (cEUR4m) EBITDA growth for the segment y/y. Capital allocation remains an open question Options remain open on how Wacker Chemie will allocate the Siltronic sale proceeds (cEUR1.3bn). Management understandably does not want to make promises on capital allocation until the proceeds are received - we assume a cash inflow during 4Q21. We suspect special shareholder returns and organic investments are the most likely outcome, with Wacker seemingly...
Or Polysilicon’s ‘reincarnation’, which is expected by management looking at the strong profitability guidance and the potential contributors. The high dividend proposal (€2.00 per share; AlphaValue: €0.50) looks to us like a sounding for a strong 2021. As Wacker had already announced preliminary figures (not very difference to this), the focus lies on the details and the 2021 perspectives. After today’s management presentation, we have become more confident for 2021.
4Q cash flows impress Wacker Chemie''s preliminary FY20 results underlined improving trends across all of the company''s business lines. As had been flagged in the run up to results, demand materialised above trend levels during Q4. This was most pertinent in Polymers and Silicones where customers began to re-stock as demand picked up during Q3 and retained momentum into Q4. Polysilicon earnings also bounced back which allowed Wacker to breakeven on EBITDA for the full year. Q4 net cash flows were impressive at EUR245m, which helped net debt fall to EUR70m at FY20 y/e (vs EUR714m in FY19). That said, we do expect cash flows to normalise in 2021 with capex and working capital set to ramp back up. Our price target increases to EUR120 reflecting c13% EBITDA upgrades for 21/22'', inclusion of the Siltronic sale proceeds in 2021 and a roll forward of our DCF. Expect rising raw materials to taper the speed of margin growth We expect increasing raw material prices to result in a normalisation of Chemicals margins during 2021. Silicone EBITDA margins increased c280bps sequentially during Q4 to 19.3%. While margins remain some way off peak levels (c24%), we expect rising raw materials costs (eg methanol) to reduce the speed of margin improvement during 2021 (we forecast a c130bps increase in Silicone EBITDA margins for FY21). The case is similar in Polymers - we forecast a c60bps margin decline in 2021. Polysilicon is a different story with earnings set to recover from trough during 2020. We believe the market has broadly priced these dynamics in, and at c8.4x 21'' EV/EBITDA, we see limited potential for further re-rating. Siltronic divestment opens up options for balance sheet utilisation The sale of Siltronic to Globalwafers will generate cEUR1.3bn of gross proceeds for Wacker''s 30.8% stake. This will bring leverage down close to zero by 21'' y/e on our estimates and creates options for management to make special shareholder returns. Wacker...
Wacker Chemie’s preliminary figures confirmed our expected profit increase in Q4, bringing Polysilicon’s EBITDA back into the black, also on a FY basis. The chemicals divisions painted a mixed picture in the last quarter, but all remained on the profitable side. Our top line as well as EBITDA expectations were beaten. The same was true for consensus.
Polymer margins drive Q3 EBITDA beat Wacker reported a robust 9% EBITDA beat driven predominately by outperformance in its Polymers business on volumes but especially margins (c400bps above cons) thanks to very high incremental margins. We suspect some normalisation in margins is inevitable during Q4 and in 2021, but this will likely be gradual as we see further demand recovery and there is no sharp inflation in sight. All in, we upgrade our group EBITDA by c4% primarily on the back of Polymers strength (see Figure 1 inside), and also raise our medium term forecasts to push our PT to EUR80. Cash flows a strong positive FCF also outperformed expectations with lower capex and working capital accounting for the majority of the cEUR129m y/y growth. Management unsparingly suggested that the market should not expect the same magnitude of cash generation during Q4, although a positive development is anticipated. Capex guidance remains at cEUR250m, although this will likely rise to EUR450m in the mid-term. The company''s dividend policy remains unchanged. Polysilicon outlook positive, current trading in Silicones looking good Management remained positive on the polysilicon market during 2021 in both solar and semiconductors. While it is not clear when the GCL-Poly capacity will come back online, management expects demand growth to help balance the market in the event of increased supply. Silicones saw a slightly delayed recovery compared to Polymers during Q3, although the current order book was said to be strong. If we had to ask one question (more inside) How sustainable is the recent strength in EBITDA margins given they are now at multi-year highs and assuming input costs remain stable at current levels near-term?
