Lanxess AG – Specialty Chemicals in Transition

Brief Summary for Investors: Lanxess AG is a German specialty chemicals group with a broad product range for key industries such as automotive and construction. The company is currently going through a challenging phase with significant declines in earnings following strong performance in previous years.

Development The share price showed a significant downward trend from 2020 to mid-2022, driven by the global energy crisis, rising raw material prices, and weakening demand in key customer industries. The most recent quarters have consistently shown losses (negative EPS) and a significant decline in sales and EBITDA compared to the record years of 2021 and 2022. However, the positive free cash flow generation in the most recent quarter (EUR 161 million) provides a certain degree of operational stability.

Opportunities:

• The strategic focus on specialty products for future-oriented areas such as electromobility, lightweight construction, and water treatment could benefit from long-term megatrends.
• The high liquidity (current ratio: 2.4) provides the company with flexibility for necessary restructuring and investments.
• A recovery in global industrial production, particularly in China and Europe, could revive demand for chemical intermediates.

Risks:

• Persistent operational weakness: Negative margins (EBIT: -29 million euros in the last quarter) and low return on capital employed (ROE: -1.1%) demonstrate significant profitability problems.
• Cyclical dependence: Lanxess is strongly linked to the cyclical automotive and construction industries, making it particularly vulnerable in an economic downturn.
• High debt: A debt-to-equity ratio of over 1.1 puts a strain on the balance sheet and increases financing costs in a phase of rising interest rates.

Additional information: The sharply fluctuating free cash flows in the quarters indicate uncertainties in working capital management, possibly due to volatile raw material prices and inventory levels.

Conclusion: Lanxess is undergoing a profound turnaround. While fundamentals are currently weak and the share price performance reflects this, its robust business model in niche markets offers long-term potential. An investment is currently highly speculative and requires management to successfully overcome the profitability crisis through cost control and strategic focus. The recovery depends on an economic recovery.

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