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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.
Wacker Chemie AG
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?
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