Investment In Biotech And Sustainability Will Strengthen Future Outlook

Key Takeaways

• Focus on specialty silicones and biotech facilities boosts revenue and EBITDA through improved product mix, capacity utilization, and demand.
  
• Strategic alignment with global megatrends and sustainability enhances long-term growth potential and margin stability through investments and partnerships.
  
• Economic recession, overcapacities, and price pressures are negatively impacting Wacker Chemie's revenue, earnings, and margins across key segments.

Catalysts

Provides chemical products worldwide.

• Wacker Chemie's focus on specialty silicones is expected to drive higher sales and improve its EBITDA margins due to better product mix and increased capacity utilization. This should have a positive impact on the company's earnings and margins.
  
• The commissioning of new biotech facilities in Halle and Leon is projected to support growth in the Biosolutions segment, which could significantly boost revenue and EBITDA due to increased capacity and demand in biopharma.
  
• Strengthening the semiconductor business in polysilicon through a focus on semi-grade products is likely to stabilize revenues and enhance margins despite challenges in the solar-grade market, positively influencing future earnings.
  
• Wacker's investments in sustainability efforts and partnerships with major clients like Unilever highlight potential long-term revenue growth and margin stability as it aligns with global megatrends and customer sustainability goals.
  
• A strategic focus on global megatrends such as energy transition, e-mobility, and smart construction is expected to drive future revenue growth and improve EBITDA margins, leveraging its specialty chemical products and regional presence.

Wacker Chemie Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wacker Chemie's revenue will grow by 5.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.2% today to 5.4% in 3 years time.
• Analysts expect earnings to reach €368.3 million (and earnings per share of €7.41) by about April 2028, up from €241.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €444.5 million in earnings, and the most bearish expecting €257.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.5x on those 2028 earnings, up from 13.7x today. This future PE is lower than the current PE for the GB Chemicals industry at 15.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.12%, as per the Simply Wall St company report.

Wacker Chemie Future Earnings Per Share Growth

Risks

• The European chemical industry, including Wacker Chemie, is facing an economic recession with slow demand and capacity utilization, directly impacting revenue growth and net margins.
  
• Massive overcapacities in China and U.S. tariff uncertainties are negatively affecting solar-grade polysilicon demand, decreasing earnings in this segment.
  
• Lower average prices in the polysilicon and polymers segments are pressuring the EBITDA, impacting the company's profit margins.
  
• Wacker Chemie's sales dropped by 11% year-over-year due to reduced prices and volumes sold in polysilicon, influencing overall earnings negatively.
  
• Continued weakness in construction-related markets and competitive pressure in polymers could further impact sales and net margins in these segments.

Valuation

• The analysts have a consensus price target of €91.133 for Wacker Chemie 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 €129.0, and the most bearish reporting a price target of just €70.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €6.8 billion, earnings will come to €368.3 million, and it would be trading on a PE ratio of 14.5x, assuming you use a discount rate of 6.1%.
• Given the current share price of €66.25, the analyst price target of €91.13 is 27.3% 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.