Evonik to Acquire Porocel for $210 Million to Accelerate Catalyst Business

Evonik Industries, a Germany-based speciality chemicals company, said it will acquire the Porocel Group for $210 million to accelerate the growth of its catalyst business, sending its shares up over 1% to EUR 24.65 on Wednesday.

The purchase price (enterprise value) is 9.1 times adjusted earnings before interest, tax, depreciation and amortization (EBITDA) in 2019, which is an attractive valuation for a high-quality asset in the catalyst sector.

Porocel’s global position strengthens the worldwide presence of Evonik’s catalyst activities. The complementary fit to Evonik’s existing catalyst portfolio and especially the available production capacities offer considerable growth opportunities, the company said.

Evonik expects to increase sales of the combined catalyst business to significantly more than EUR 500 million by the end of 2025 without the need for investment in new capacities.

The deal is expected to close by the end of this year and is subject to approval by the relevant authorities.

Evonik shares traded over 1% higher at EUR 24.65 on Wednesday. However, the stock is down about 10% so far this year.

Executive comments

“This acquisition is the next logical step in the strategic development of our portfolio. Our focus is on stable and high-margin speciality chemicals,” said Christian Kullmann, chairman of the executive board.

“We are systematically expanding the share of our speciality businesses – and that at an attractive valuation.”

Evonik stock forecast

Morgan Stanley gave a target price of EUR 28.50 with a high of EUR 36 under a bull-case scenario and EUR 16 under the worst-case scenario. Evonik Industries has been assigned a EUR 27 price objective by analysts at Barclays. The firm currently has a “buy” rating on the stock.

Other equity analysts also recently updated their stock outlook. Berenberg Bank set a EUR 24 target price and gave the company a “neutral” rating. Independent Research set a EUR 25 target price and gave the company a “neutral” rating. Deutsche Bank set a EUR 33 target price and gave the company a “buy” rating.

Analyst view

“We’re Overweight as we think Evonik is the clearest example of a “change” story in EU chemicals. A combination of: (1) SG&A savings of EUR 200 million; (2) additional business line restructuring projects, notably bioamino acids and SAP; (3) synergies to deliver on M&A by 2020/21; and (4) future portfolio transition. Valuation is attractive, on our numbers,” said Charles Webb, equity analyst at Morgan Stanley.

“Our price target of EUR 28.5 is the blended average of our DCF EUR 28 (WACC 6.3%, terminal growth 1.4%), RI EUR 28 (same assumptions as DCF), DDM (CoE 8%, terminal growth 4.7%) and spot peer-group multiple EUR 30,” Webb added.

Upside and Downside risks

Upside: Perfect execution on new capex ramp-ups, delivering on €200m cost savings, acquisition synergies and portfolio optimisation, higher methionine prices driven by tighter S&D dynamics – highlighted by Morgan Stanley.

Downside: Volatility in methionine prices, FX, C4 chain pricing, M&A and European demand.