Why Evonik Industries (ETR:EVK) Hides Long-Term Value in Its Specialty Chemicals Portfolio: A Buy at Today’s Prices

Investors often overlook hidden gems buried in cyclical sectors. Evonik Industries (ETR:EVK), a global leader in specialty chemicals, is one such gem—its stock price languishes amid macro headwinds, yet its portfolio of high-margin, sustainable materials is primed for explosive growth. Let’s dissect why EVK is a compelling buy at current valuations.

Cyclical Mispricing: When Headwinds Mask True Potential

Evonik’s Q1 2025 results reflect a company navigating headwinds but still delivering resilience. Despite a 1% dip in revenue to €3.78 billion, adjusted EBITDA rose 7% to €560 million, with margins expanding to 14.8%—a testament to its cost discipline. Yet the stock trades at just 7.8x 2025E EV/EBITDA, below its five-year average of 9.2x. Why? The market fixates on near-term challenges like energy costs and industrial cyclicality while ignoring the structural advantages embedded in its specialty divisions.

The Undervalued Engine: Specialty Chemicals Divisions

Evonik’s value lies in its four specialty divisions, which collectively generate over 85% of its EBITDA. These segments are not just resilient—they’re positioned to dominate in green energy and sustainability trends.

1. Nutrition & Care: The Growth Catalyst

• Animal Nutrition: Q1 sales surged 12% to €1.0 billion, driven by amino acid pricing 30% above 2023 levels. These products are critical for sustainable animal feed, benefiting from rising global protein demand.
• Health & Care: Active pharmaceutical ingredients (APIs) and lipid-based drug delivery systems are scaling rapidly. The division’s 35% EBITDA margin expansion (to 19.6%) signals pricing power and cost efficiency.

2. Specialty Additives: Niche, High-Value Markets

• Sustainability-Driven Demand: Additives for paints, coatings, and oil lubricants are benefiting from regulatory tailwinds (e.g., EU’s REACH compliance standards). Q1 volumes rose 2%, outpacing peers.
• Cost Discipline: The division’s 21.9% EBITDA margin, despite flat pricing, highlights operational excellence.

3. Smart Materials: A Sleeping Giant

• High-Performance Polymers: Used in EV batteries, wind turbine blades, and medical devices, this segment’s margins dipped temporarily due to one-time factors (e.g., missing royalty income). However, new capacities in Singapore and Austria (e.g., SEPURAN® membranes) will drive 20%+ volume growth by 2026.
• R&D Efficiency: Evonik spends €330 million annually on R&D—just 2.4% of sales—yielding breakthroughs like lipid nanoparticles for mRNA vaccines, which generated €100 million in 2024 alone.

Structural Advantages: Cost Discipline and Portfolio Rebalancing

Evonik’s Tailor Made program, targeting €400 million in annual savings by 2026, is already bearing fruit. Q1’s 53% jump in free cash flow to €195 million underscores its ability to convert earnings into shareholder value.

• Energy Cost Hedging: Less than 5% of total costs are exposed to European energy prices, with 2025 hedging locking in stable margins.
• Portfolio Streamlining: Eliminating redundant divisions and consolidating infrastructure into two segments (Custom Solutions and Advanced Technologies) reduces overhead and accelerates decision-making.

Green Energy Trends: The Tailwind Ignored by the Market

The global shift to sustainability is a multi-decade tailwind for Evonik:
- Biodegradable Plastics: Its Tecoflex® and Estane® polymers dominate eco-packaging and medical markets, with demand set to grow at 8% CAGR.
- Battery Materials: Partnerships with automakers and battery giants ensure steady demand for lithium-ion electrolytes and separators.
- Carbon Capture: Its SEPURATM membrane technology captures CO2 at a fraction of the cost of competitors, targeting a €1 billion market by 2030.

Valuation: A Mispriced Growth Story

At current prices, EVK trades at €20.50, near its 52-week low. Contrast this with:
- 2025E EPS of €1.60, implying a 12.8x P/E versus a 10-year average of 15.2x.
- ROIC of 7.1% in 2024, set to rise to 9%+ by 2026 as capex declines.
- Undiscovered Assets: Its $2 billion+ pipeline of sustainable materials projects (e.g., lipid-based APIs, bio-based polymers) is not yet priced into the stock.

Conclusion: Buy EVK Before the Market Wakes Up

Evonik’s specialty chemicals divisions are underappreciated engines of growth, shielded by cost discipline and structural reforms. With energy costs hedged, R&D-driven innovation, and a tailwind from global sustainability mandates, EVK is primed to rebound.

Actionable Thesis:
- Buy now at €20.50.
- Target: €28–€30 by end-2025, reflecting a 15x P/E on 2026E EPS of €1.80.
- Catalyst: Capital Markets Day on May 22, where Evonik will likely outline its 2026+ growth roadmap and cost-savings progress.

The market’s focus on macro noise is obscuring a once-in-a-decade opportunity in a company with the scale, innovation, and balance sheet to thrive in the green economy. This is a buy-and-hold for the next decade.

Disclosure: The author has no position in EVK. Research is for informational purposes only.