SOLB: Recent Macroeconomic Pressures Will Shape Outlook Amid Stable Fundamentals

Key Takeaways

• Expansion in rare earths and battery materials, alongside operational digitalization, positions Solvay for stronger asset utilization, margin gains, and long-term growth leadership.
  
• Sustainability initiatives and supply chain localization strategies align with regulatory trends and premium pricing opportunities, further supporting future-proofing and profitability.
  
• Prolonged pricing pressures, trade tensions, operational inefficiencies, and environmental liabilities threaten Solvay's revenue stability, margin strength, and future growth opportunities.

Catalysts

Provides basic and performance chemicals worldwide.

• Growing customer demand for rare earth production capacity outside of China-triggered by Chinese export controls and seeking greater supply chain localization-positions Solvay's La Rochelle plant for potential rapid expansion, paving the way for incremental high-value revenue streams and improved asset utilization in the coming years.
  
• Advancement of digitalization initiatives (IoT, drones, process automation) is delivering consistent structural cost savings across Solvay's plants, which are expected to exceed interim targets and drive higher operating margins and earnings over the medium term.
  
• Solvay's strategic focus on energy transition and sustainability (including reducing greenhouse gas emissions by 10% year-on-year and ongoing investments in green chemistry) is enabling the company to future-proof its portfolio, align with regulatory shifts, and benefit from premium pricing, positively impacting long-term margins and growth.
  
• Ramp-up of new, highly competitive soda ash and rare earth capacities offers scope for improved profitability and share gains once market demand normalizes or supply rationalization (e.g., Chinese plant closures) occurs; this operational leverage may be underappreciated in the current valuation.
  
• Increased customer interest and potential policy support for European battery materials and rare earths, driven by electrification and EV sector growth, creates an opportunity for Solvay to become a leading regional supplier, supporting sustained top-line growth and margin expansion over the long term.

Solvay Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Solvay's revenue will decrease by 2.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.8% today to 6.8% in 3 years time.
• Analysts expect earnings to reach €308.9 million (and earnings per share of €2.89) by about September 2028, up from €139.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €437.0 million in earnings, and the most bearish expecting €240 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.8x on those 2028 earnings, down from 20.5x today. This future PE is lower than the current PE for the GB Chemicals industry at 22.7x.
• Analysts expect the number of shares outstanding to grow by 0.36% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.15%, as per the Simply Wall St company report.

Solvay Future Earnings Per Share Growth

Risks

• Prolonged pricing pressure and decreased demand in key segments, particularly soda ash and Coatis, driven by high Chinese inventories, aggressive Asian competition, and global overcapacity, threaten to depress group revenues and net margins into 2026 and potentially beyond.
  
• Heightened global trade tensions-especially tariffs between the U.S., Brazil, China, and the EU-are fueling demand uncertainty, destabilizing order volumes, and could structurally alter export flows, risking further revenue volatility and a long-term earnings drag.
  
• Operational inefficiencies due to persistent industry underutilization (e.g., running plants below optimal utilization rates) are inflating cost per unit and weakening Solvay's EBITDA margins, with no clear indication of short-term market recovery to support a margin rebound.
  
• Legacy and ongoing environmental liabilities, including high annual cash outflows for environmental remediation and litigation, are pressuring free cash flow and may require higher-than-expected provisions, potentially constraining capital for future strategic growth.
  
• Delayed or uncertain expansion in strategic growth areas (e.g., rare earths) due to strict cash management, dependence on customer commitments, and unfavorable market conditions could limit Solvay's ability to capture long-term revenue opportunities, affecting its future earnings growth trajectory.

Valuation

• The analysts have a consensus price target of €29.833 for Solvay based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €37.0, and the most bearish reporting a price target of just €24.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €4.6 billion, earnings will come to €308.9 million, and it would be trading on a PE ratio of 12.8x, assuming you use a discount rate of 8.1%.
• Given the current share price of €27.28, the analyst price target of €29.83 is 8.6% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.