Stock exchange house Degroof Petercam: ‘Splitting up can give Solvay the recognition it deserves’

By the end of this year, the chemical group Solvay wants to split itself into two separate listed companies. According to the brokerage house Degroof Petercam, this dichotomy can bring out a lot of hidden value.

Now that the split is getting closer, Frank Claassen, an analyst at Degroof Petercam, made another extensive analysis of the Belgian chemical group. ‘Although there are still question marks, we are positive about the impending dichotomy,’ says Claassen.

Solvay CEO Ilham Kadri wants to simplify the group structure through the division into two companies. A good choice, says Claassen. “In the past, Solvay has often been viewed as too broad and complex and therefore valued at the low multiples of diversified chemical companies. A separate listing provides greater clarity and a sharper focus on the strategic direction of both companies, enabling them to realize their full potential.”

A separate listing could be particularly beneficial for the growth division SpecialtyCo. With an annual turnover of 7.8 billion euros, the branch has become the largest in the group, but is not yet valued by the market. ‘So far, the better operational performance has not led to a revaluation of the share compared to its peers,’ says Claassen.

“However, since Kadri took over as CEO in March 2019, we have seen a significant improvement in portfolio, growth, margins, free cash flow, balance sheet and ESG performance.” ESG stands for environment, social objectives and corporate governance.

Not unimportant: as separate companies, both entities are large enough to have a seat in the Bel20

to claim. SpecialtyCo’s place in the Belgian star index is almost certain, while the EssentialsCo branch, with an estimated market value of almost 4 billion euros, also has a real chance of being listed on Bel20.

This does not alter the fact that the division of property is a complex procedure. Claassen estimates the costs of the entire operation at 200 million euros. And a series of important decisions have to be made in the coming months, regarding the management of the two companies, the new brand names, the dividend policy, the splitting of the pension and environmental liabilities…

All that work pays off when it reveals the hidden value of the chemical group. The analyst estimates the value of the sum-of-parts at Solvay at 148 euros, almost 50 percent more than the current share price. “Splitting the company into two separate entities may finally give Solvay the recognition it deserves.”