Is Solvay (ENXTBR:SOLB) Undervalued After Doubling Taiwan Chip Chemical Capacity?
Solvay (ENXTBR:SOLB) is expanding its Taiwan capacity for ultra pure hydrogen peroxide from 35,000 tonnes to more than 70,000 tonnes in order to support chipmaking customers such as TSMC and grow its electronics focused peroxide business.
For investors watching Solvay, the expansion comes as the share price has been relatively muted, with a 1-day share price return of 0.93% and a 90-day share price return of 1.08%. At the same time, the 1-year total shareholder return of 1.68% and 3-year total shareholder return of 46.16% point to stronger longer term gains that may reflect shifting views on its earnings mix and perceived growth potential in areas like electronic grade chemicals.
Compare Solvay's push into semiconductor chemicals with other potential beneficiaries of chip demand by scanning our hand-picked 55 AI infrastructure stocks.
Solvay’s move to double Taiwan peroxide capacity comes while the stock has been relatively flat over shorter periods. Are investors paying for a stronger underlying business, or mainly reacting to changing sentiment around semiconductors and chemicals valuation?
Most Popular Narrative: 4.3% Overvalued
Solvay’s most followed valuation narrative points to a fair value of €25.10 based on a discount rate of 7.99%, compared with the last close at €26.18. That small gap puts more focus on whether rare earths, battery materials and electronics chemicals can support the earnings profile implied in that fair value.
Growing customer demand for rare earth production capacity outside of China, triggered by Chinese export controls and by efforts to achieve 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.
Want to understand why this narrative assumes falling revenue yet sharply higher earnings and margins. The rare earths buildout, profitability reset and future earnings multiple are all wired into that €25.10 fair value. The interesting part is how much of Solvay’s future profit pool is expected to come from these newer, higher value segments rather than legacy chemicals.
Result: Fair Value of €25.10 (OVERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, Solvay still faces clear risks, including prolonged pricing pressure in soda ash and Coatis, as well as ongoing environmental liabilities that could limit cash available for growth projects.
Find out about the key risks to this Solvay narrative.
Another View on Solvay’s Valuation
The first narrative frames Solvay as about 4.3% overvalued against a €25.10 fair value. Our DCF model presents a different perspective. On that view, Solvay at €26.18 trades around 57.8% below an estimated fair value of €62.04, indicating a wide gap in expectations. Which set of assumptions do you find more realistic for the next few years?
Look into how the SWS DCF model arrives at its fair value.
Next Steps
If this mix of cautious and optimistic signals around Solvay leaves you uncertain, move quickly to review the details yourself and decide where you stand, then weigh the balance of 3 key rewards and 4 important warning signs.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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