Dual Listing And Capital Reallocation Will Strengthen Core Resilience

Key Takeaways

• Syensqo's dual listing plan and capital reallocation aim to enhance market visibility, valuation, and drive long-term financial returns.
  
• Focus on core business units and GenAI tool investment is projected to enhance growth in Aerospace, Electronics, mining, and Specialty Polymers.
  
• Uncertain demand, reliance on high-margin segments, and strategic divestments may challenge revenue growth and impact financial stability.

Catalysts

Engages in the research, development, and production of advanced materials for industrial and consumer applications worldwide.

• Syensqo is exploring a potential dual listing in the U.S., which could expand and enhance its investor base, potentially driving improved market visibility and valuation over the long term. This is likely to impact the company's earnings and share price.
  
• The company is reallocating capital to drive long-term returns, focusing on smaller, faster projects that promise higher returns with lower risk. This strategic shift is expected to improve net margins and provide clearer line-of-sight returns on growth CapEx.
  
• Syensqo is committed to becoming a stronger, simpler, and more resilient company by focusing on its core business units, which are aligned with secular growth trends such as Aerospace, Electronics, and mining. These segments, already major contributors to EBITDA, are forecasted to drive revenue growth.
  
• Operational efficiency improvements and cost-saving initiatives are expected to be weighted toward the second half of 2025. These measures are anticipated to further strengthen net margins and bolster the company's financial performance.
  
• The company's investment in a GenAI-based tool has already resulted in customer wins in Specialty Polymers, with plans to roll it out company-wide to drive incremental growth. This initiative is expected to increase revenues by better understanding and fulfilling customer needs.

Syensqo Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Syensqo's revenue will grow by 2.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.1% today to 8.7% in 3 years time.
• Analysts expect earnings to reach €634.9 million (and earnings per share of €6.41) by about May 2028, up from €-5.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €830 million in earnings, and the most bearish expecting €484 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.1x on those 2028 earnings, up from -1324.5x today. This future PE is lower than the current PE for the BE Chemicals industry at 25.6x.
• Analysts expect the number of shares outstanding to decline by 1.68% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.97%, as per the Simply Wall St company report.

Syensqo Future Earnings Per Share Growth

Risks

• Uncertain demand environment and persistent challenges in the industry could impede revenue growth and impact earnings.
  
• Dependence on high-margin segments like Specialty Polymers, which are currently facing reduced demand, may pressure revenue and net margins.
  
• Delays in semiconductor fab construction and higher-than-expected customer destocking in Electronics could negatively affect revenue in early 2025.
  
• Strategic divestment of Oil & Gas and Aroma segments could reduce revenue, and may not materialize as planned, leaving these businesses as financial liabilities.
  
• Potential risk associated with IT infrastructure and digital architecture upgrades may increase capital expenditures and affect cash flow.

Valuation

• The analysts have a consensus price target of €86.0 for Syensqo based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €110.0, and the most bearish reporting a price target of just €62.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €7.3 billion, earnings will come to €634.9 million, and it would be trading on a PE ratio of 16.1x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of €64.32, the analyst price target of €86.0 is 25.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.