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All three divisions were negatively impacted by a triad of lower volumes and prices, and FX headwinds – earlier than we had expected. Interestingly, only volumes took their toll on profitability and the margin was slightly higher. This was unlike the scenario of some years ago, when Solvay saw collapsing margins in comparable conditions. The Q3 figures were a significant miss relative to our estimates (sales: -11.8%; adjusted EBITDA: -7.0% – consensus: sales: -9.2%; adjusted EBITDA: 1.4%).
Companies: Solvay (SOLB:EBR)Solvay SA (SOLB:BRU)
AlphaValue
Solvay was not able to decouple from the lower overall demand across the chemicals industries, but the company is well positioned to defend its margins at the group level. This allowed the management to confirm its FY guidance with a somewhat more upbeat view on FCF. This may look like an easy task given that >50% has already been booked, but the second semester could become challenging. The revenue line was a -2.9% miss to the consensus although the adjusted EBITDA was a +3.2% beat.
Solvay is now a completely different company than some years ago. Profitability is also stronger during cold weather although things are becoming more difficult as higher sales prices cannot always compensate for lower volumes. All in all, the strong beat on profitability relative to our estimates (+17.0%; consensus: +14.9%) was a pleasant surprise. he company-calculated FCF however missed our expectations by -30.9%.
Solvay’s management achieved a great deal in the 2019-22 period, having successfully navigated the pandemic and the ensuing challenges. By increasing profitability, many other KPIs improved (leverage, ROCE), which now enables the separation of the company. Having covered the company for many years, this seems too good to be true. Solvay reported another quarter beat of AV and the street’s expectations, but 2023 will be a more challenging year with a strong focus on margin preservation.
After some preliminary figures, it was clear Q3 was a strong quarter. Now the future outlook is coming into focus and the management will need to provide some – at least – qualitative insights so as to manage expectations, which could go in two directions. The reported figures were not much of a surprise. As expected, Materials continued its recovery and all divisions enjoyed strong pricing power. The top line beat to our estimates was +11.1% (consensus: +10.9%) and +13.2% (consensus: +20.0%)
The management raised the FY guidance on the back of the strong Q2 coming in in-line with our expectations after the release of preliminary figures, despite being more optimistic at the adjusted EBITDA level. Nevertheless, Alphavalue and the consensus had been far too conservative on the Q2, forcing the company to release preliminary figures earlier this month. We were strongly beaten at the top-line (+18.5%; consensus: +12.2%) and by +30.1% (consensus: +26.5%) at adjusted EBITDA level.
Companies: Solvay SA (0NZR:LON)Solvay SA (SOLB:BRU)
Solvay’s Q1 beat our moderate expectations by +17.8% (sales) and +25.6% (adjusted EBITDA), but beating consensus by +10.6% (sales) and +17.7% (adjusted EBITDA) without ‘ringing’ the preliminary (figures) bell is somewhat annoying. The company sailed ahead of the cost curve, delivering a positive pricing delta, something which added a major building block to the adjusted EBITDA improvement. One positive point is that the higher products did not wipe out volumes.
It sounds like a great plan to separate Solvay’s diversified businesses into two. We do not fully understand why certain businesses ended up in one or the other, even after listening to the conference call. The overriding principle seems to be Value Creation. Taking on a different angle, this unexpected move seems to be an acceleration of Solvay’s historic portfolio rotation story. In the end, it will provide more clarity to shareholders.
Solvay’s figures were only a slight beat to our top-line (+1.4%; consensus: +1.9%) and adjusted EBITDA (+1.9%; consensus: +2.4%) estimates. Interestingly, the beat in IFRS EBIT was even stronger (+15.9%; consensus: +10.9%). FCF declined, but was above the guided level, likewise the adjusted FY EBITDA. Given the 2022 guidance includes some moving parts, management shared many insights and therefore it looks quite achievable in our view.
Solvay released consensus-beating (sales: +6.8%; adjusted EBITDA: +5.1%) Q3 figures, which were driven by all divisions, of which Materials was a bit of a surprise. The latter could increase its margin, but other divisions could only protect them. The updated guidance looks very achievable and the strong Q3 results might make it look cautious. We assume the steep increase in energy prices as well as raw material costs have not full materialised in Q3.
The good news is that Solvay’s Q2 report was not exceptional as the beats to consensus figures were not too strong (sales: +2.7%; adjusted EBITDA: +6.0%). Except for aerospace, all customers showed vital signs and future business prospects led management to the conclusion to lift FY guidance. The weak FCF performance make us wonder if the right measures are in place as NWC flows clearly swung.
Solvay had a very good start, reporting adjusted (!) EBITDA above pre-crisis levels. In the light of reality, the ugly scratches of the portfolio measures obviously weighed on profitability. Nevertheless, we are a bit more optimistic for the company, not just because our estimates were beaten by +5% (sales) and by +10% on the adjusted EBITDA (consensus: +2% and +11%), but the company beat its own estimates by +9%.
Solvay’s cost-cutting initiatives have been successful and protected the company’s profitability in this challenging environment. The reported figures were slightly ahead of consensus on the adjusted profitability level and the miss to the top line was not too meaningful. Our expectations have been clearly beaten on the profitability level. More interesting seems to us the potential change in Solvay’s esteem. ESG commitments have been enlarged under the aegis of the GROW initiative underpinnin
Solvay’s Q3 did not reflect any recovery at the divisional level in its businesses. All divisions recorded double-digit volume declines, especially Materials. This also had a negative impact on profitability, to which adverse FX developments have to be added. Q3 came in weaker than expected, especially in Materials, but the reported figures were above street expectations.
Companies: Solvay SA
Solvay’s management has already indicated weak first months in Q2 but, since then, some of the businesses have caught up. However, the Q2 figures were a notch weaker than feared by consensus, but slightly above our expectations. Management did not provide a detailed outlook, but shed some light on its FY challenges (cost savings). This does not make us too enthusiastic about the coming quarters.
Research Tree provides access to ongoing research coverage, media content and regulatory news on Solvay SA. We currently have 19 research reports from 3 professional analysts.
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