Credit Suisse analysts said novel coronavirus pneumonia epidemic is the main driving force for the transformation of European chemicals from general chemicals to specialty chemicals. At present, most European chemical enterprises continue to push forward to downstream industries to resist the decline in profitability caused by large-scale production of basic chemicals.
At the same time, the weak demand brought by the economic recession has also prompted people to pay more attention to defensive stocks with high certainty and low odds ratio. So far, investors have focused on safe haven assets because of the poor economic outlook. Some mature economies have even issued bonds with negative interest rates, which has become the main factor driving up the price of specialty products.
Credit Suisse said that during the crisis, the EBITDA multiple premium of specialty chemicals companies had risen to an average of 140 per cent, compared with a historical multiple of about 90 per cent, compared with bulk chemical producers.
According to ICIS analysis, the continuous improvement of China’s bulk chemical production capacity may promote China to become an exporter of several key chemicals such as polypropylene (PP). In the past, China has been a major importer of such goods. This may also drive the de universalization process in the European chemical industry. Among the European listed companies, covestro is one of the few to retain the general chemicals business. Although the company is also vigorously developing its sustainability business and is focusing on developing new applications for the market.
Ineos is listed by Moody’s as one of the companies with low level of specialty chemicals at present, and it is most vulnerable to low demand in the chemical market. The company has made a lot of investment in many market leading general chemicals value chains, and compared with many peers, the investment risk is relatively small.
Evonik sold its methyl methacrylate (MMA) business unit in early 2019. Akoma, on the other hand, has repositioned itself as a pure specialty company, aiming to make all its sales revenue come from non generic chemicals in 2024, partly in response to pressure from radical investors to sell its methacrylate business.
Streamlining operations is also a factor in the fight against so-called conglomerate discounts, where private equity firms are keen to buy lower margin basic chemicals businesses from large European companies. Some companies that have turned to specials have yet to fully convince the market that their valuations are still lower than the underlying portfolio’s expectations. Credit Suisse said akoma’s market value had the greatest potential to rise as it was discussing divestitures of methacrylate and commercial fluorine.