Covestro Withholds Dividend Following 2022 Net Loss

No-moat Covestro 1COV reported fourth-quarter EBITDA of negative EUR 38 million, down significantly versus 2021. The loss was broadly in line with the negative EUR 45 million previously announced in its profit warning last month. The EBITDA decline was mainly driven by the performance materials segment due to negative pricing and weak demand, which resulted in additional destocking along the value chain. The solutions and specialties segment was less affected, with EBITDA being almost on the previous year’s quarter level. Guidance for 2023 was vague, with EBITDA expected to decline by double-digit percentage from 2022 levels of EUR 1.6 billion. We expect 2023 to be a difficult year for Covestro, but this is already accounted for in our EUR 1 billion EBITDA for 2023, so we don’t expect to make a material change to that or our EUR 52 fair value estimate. At current levels, the shares look undervalued.

Covestro’s energy costs nearly doubled in 2022 (EUR 1 billion to EUR 1.8 billion), but in the fourth quarter, the company achieved lower costs primarily due to reduced production volumes in Europe. Global demand outlook for 2023 remains weak, and EBITDA is expected to mainly be impacted by lower volumes, low utilization rates, and high margin pressures in the performance material segment. The company’s balance sheet remains strong. However, due to the negative net income the board of management determined that there will be no dividend paid for fiscal 2022.