Wacker past capex guarantees ‘cash cow’ going forward, Siltronic’s value rockets

12 March 2018 13:23 Source:ICIS News

LONDON (ICIS)--A recovery in the solar panels industry has allowed Wacker Chemie's subsidiary for production of polysilicon wafers, Siltronic, to increase its market capitalisation nearly tenfold in two years.

Equally, European chemical analysts have said the past capital expenditures (capex) at its plants worldwide will start paying off from 2018 onwards, guaranteeing the “chemical future” the of Munich-headquartered silicones and polymers producer, according to German investment bank Baader Bank.

Wacker still holds a 31% stake at Siltronic. Following the company’s partial listing on the stock exchange in 2015, the subsidiary went through a hard time in 2016 as the solar energy market prices for the silicon wafers its produces suffered from a global slowdown.

With characteristic honesty, Wacker’s CEO Rudolf Staudigl conceded in March 2016 that the company had failed to forecast the downtown in the silicon wafers markets, adding that he was “unhappy” about the development of the subsidiary’s share price, which at the time was trading around €15 apiece.

By 11:30 GMT on Monday, Siltronic stock was trading at €148/share.

Wacker’s stock has followed the same pattern. At around €60/apiece, the company’s shares had nearly tripled by January 2018, although the correction in global stock markets took its toll and by Monday 11:30 GMT the shares were trading at €140.

Wacker Chemie’s other divisions also performed strongly in 2017, according to the preliminary annual results the producer published in February.

Full-year sales for 2017 stood at €4.9bn, up 6% year on year, and earnings before interest, taxes, depreciation and amortisation (EBITDA) stood at €1.02bn, up also 6% compared to 2016.

The company said its EBITDA margin for the year at stood 21%, a high percentage for the chemical industry.

Staudigl said at the time that “robust” consumer demand for both the chemical divisions and the polysilicon businesses had offset headwinds coming from higher costs for raw materials and the strength of the euro against other major currencies.

“Looking back at the full year, we met or surpassed our projections for every performance indicator,” he said.

Staudigl’s employers seem content with his performance at the helm of the company. In February, they decided to guarantee his position until at least 2021.

“The polysilicon cycle has bottomed out in 2017 which should improve the pricing power, and therefore the [earnings] margins of the division… with only few new capacities coming in 2018/2019 for high quality polysilicon, and Wacker’s efficiency improvements in its new US plant, we expect the division to break-even in 2018,” said Baader Bank’s analyst Laura Lopez in an investment note published in January.

“Therefore, [we] think Wacker will start to milk its cash cow polysilicon over the coming years without major investments.”

The analyst went on to say that Wacker’s strategy since 2010 – after the first solar boom and before that market’s downturn – to focus on its silicones, polymers and biosolutions divisions will pay off in year to come, after the business units already improved their performance in the last three years.

“The highly capital-intensive polysilicon business is far away from reinvestment level and chemical parts of Wacker only demand capital-light investments. Due to this comfortable investment situation and the portfolio change, Wacker’s group capital intensity will be further reduced whereas its margins should improve,” said Lopez.

In projections made before the losses in global stock markets in February, Baader Bank was forecasting in January a share price for Wacker at €203 in a 12-month timeframe, and recommended a ‘Buy’ on the stock.

In regards to Siltronic, strong demand form the solar industry has shown capacities worldwide for production of wafers is tight, which has prop up prices.

Investors know that the lack of capacities guarantees good prospects for those producers like Siltronic, and analysts see it as a clear investment case for months to come.

Credit Suisse in February said the shares could be worth as much as €170/apiece in a 12-month period, issuing an ‘Outperform’ recommendation, or ‘Buy’ in other banks’ terminology.

“Given industry data that points around wafer demand, ongoing supply constraints and comments from chip companies (buyers of wafers)… we believe our thesis on wafer pricing remains intact. In fact, we continue to flat that history suggest upside on wafer pricing remains under-appreciated,” the bank said in an investment note.

“How high can pricing [for wafers] go? Still a lot we think… If history were to repeat itself, we believe pricing can go to as high as $1.40-1.55 [per square inch] by 2020 (45-60% further increase from current levels).”

Pictured above: Chinese workers install solar panels at a photovoltaic power station Huainan city, east China's Anhui province
Source: Imagechina/REX/Shutterstock

Focus article by Jonathan Lopez

By Jonathan Lopez