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Solvay SA - Stock Quote SOLB

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Morningstar's Solvay SA Stock Analysis

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European Chemicals Outlook Dims on Rising Input Costs and Interest Rates, but We See Opportunities

Rob Hales, CFA Equity Analyst

Analyst Note

| Rob Hales, CFA |

The European chemicals sector enjoyed strong investment returns once central banks turned on the liquidity taps to combat the coronavirus pandemic in March 2020. At the start of 2022, the outlook remained bright as demand remained robust while inflation, particularly for raw materials, was expected to peak in the first half of 2022. However, we think the Russia-Ukraine war has changed the equation, leading to a more ominous picture in the back half of the year given our expectations for sustained raw material inflation and rising interest rates. Considering guidance provided by companies in the sector does not account for the impact of the Russia-Ukraine war, we think sector guidance is generally too optimistic and thus, cuts may be necessary in the second half of 2022. While our 2022 outlook for the sector has dimmed, we see opportunities at current prices. For the industrial chemical companies, we prefer Lanxess given its compelling valuation (0.5 times price/fair value estimate) and dual catalysts (business transformation, lithium project) that should create value regardless of the economic environment. For the consumer chemical companies, we prefer Chr. Hansen given its relatively attractive valuation versus peers, wide moat rating, and leading organic growth outlook.

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Solvay SA's Company Profile

Business Description

Solvay is a Belgium-based producer of chemicals, plastics, and composites. The company has a top-three market position for nearly all of its products. Key business segments include materials, chemicals, and solutions. High-value products include aerospace composites and specialty polymers while traditional chemical products include soda ash and hydrogen peroxide. Geographical exposure is relatively balanced, with Europe, North America, and Asia each contributing a third of sales.

Rue De Ransbeek, 310
Brussels, B-1120, Belgium
T +32 22642111
Sector Basic Materials
Industry Chemicals
Most Recent Earnings Mar 31, 2022
Fiscal Year End Dec 31, 2021
Stock Type
Employees 21,000