Tailor Made Program And Hedged Energy Costs Will Strengthen Future Prospects

Key Takeaways

• Strong earnings growth and free cash flow support a positive revenue outlook, aided by cost-saving measures.
  
• Strategic investments in growth areas and favorable market conditions are expected to boost revenue and competitiveness.
  
• Rising protectionism, regional reliance, and strategic changes pose risks to Evonik's revenue, earnings, and cash flow stability amidst macroeconomic concerns.

Catalysts

Produces specialty chemicals in the Asia-Pacific, Europe, the Middle East, Africa, Central and South America, and North America.

• Strong sector-leading earnings growth and a robust free cash flow track record in 2024, supported by cost-saving programs, suggest a positive outlook for future revenue and earnings.
  
• Continued investment in growth areas like Specialty Additives and Smart Materials with expected volume growth of more than 5% positions Evonik for improved revenue potential.
  
• Strategic self-help initiatives, including the Tailor Made program aiming for €200 million in savings, are expected to enhance net margins and competitiveness.
  
• Favorable FX effects and hedged energy costs for 2025 provide a stable cost environment with potential net margin improvements.
  
• Optimistic growth projections for key markets, particularly in Asia, and positive sentiment in the methionine market could boost revenues and earnings in 2025.

Evonik Industries Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Evonik Industries's revenue will grow by 2.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.5% today to 5.0% in 3 years time.
• Analysts expect earnings to reach €815.5 million (and earnings per share of €1.76) by about April 2028, up from €222.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €694.5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.4x on those 2028 earnings, down from 37.4x today. This future PE is lower than the current PE for the GB Chemicals industry at 18.1x.
• Analysts expect the number of shares outstanding to decline by 1.42% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.79%, as per the Simply Wall St company report.

Evonik Industries Future Earnings Per Share Growth

Risks

• Rising protectionism and weak end market growth, especially in the German economy, could impact Evonik's revenue and earnings, making the macroeconomic environment a concern.
  
• Continued investment in growth areas may not immediately translate into higher earnings, potentially affecting near-term financial performance and net margins.
  
• The company's heavy regional reliance, with over 60% of energy costs incurred in Europe, poses a risk if energy prices unexpectedly rise, impacting net margins.
  
• High exposure to the German market and potential delays in benefiting from planned infrastructure investments may limit expected revenue growth from local markets.
  
• Pending strategic reorganization and divestment activities, such as the Performance Materials business, introduce uncertainty that can impact cash flow stability and earnings predictability.

Valuation

• The analysts have a consensus price target of €22.233 for Evonik Industries 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 €26.0, and the most bearish reporting a price target of just €18.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €16.4 billion, earnings will come to €815.5 million, and it would be trading on a PE ratio of 14.4x, assuming you use a discount rate of 5.8%.
• Given the current share price of €17.81, the analyst price target of €22.23 is 19.9% 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.