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1. Company Snapshot

1.a. Company Description

Covestro AG supplies high-tech polymer materials and related application solutions.It operates in two segments, Performance Materials, and Solutions & Specialties.The Performance Materials segment develops, produces, and supplies high-performance materials, such as polyurethanes and polycarbonates, and base chemicals, which include diphenylmethane diisocyanate (MDI), toluylene diisocyanate, long-chain polyols, and polycarbonate resins for use in furniture and wood processing, construction, automotive, and transportation industries, as well as roof structures, insulation for buildings and refrigerators, mattresses, car seats, and other applications.


The Solutions & Specialties segment comprises a range of polymer products, including precursors for coatings and adhesives, polycarbonates, MDI specialties and polyols, specialty films, elastomers, and thermoplastic polyurethanes that are used in automotive and transportation, electrical, electronics and household appliances, construction, and healthcare industries, as well as composite resins for wind turbine, rotor blades, laptop cases, and floodlights.The company markets its products through trading houses and distributors.It operates in Europe, the Middle East, Africa, Latin America, the United States, Canada, and the People's Republic of China.


The company was founded in 1863 and is headquartered in Leverkusen, Germany.

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1.b. Last Insights on 1COV

Covestro AG's recent performance was driven by stable revenue and EBITDA growth despite market pressures. The company's focus on portfolio optimization and cost-saving initiatives has contributed to its resilience. The approval of Adnoc's $13 billion acquisition of Covestro by the EU removed a key regulatory hurdle, paving the way for the deal to proceed. Additionally, the agreement with INEOS for LNG supply will provide Covestro with a stable natural gas source. The growing demand for Polypropylene Glycol, a key product for Covestro, is expected to reach USD 6.30 Billion by 2034, driven by a CAGR of 4.9%.

1.c. Company Highlights

2. Covestro's Q3 2025 Earnings: A Mixed Bag

Covestro's third-quarter 2025 financial performance was marked by a 1.5% decline in sales to EUR 3.2 billion, primarily driven by negative pricing and FX effects. EBITDA decreased by 15.7% to EUR 242 million, mainly due to the unfavorable industry supply-demand balance, negative pricing delta, lower volumes, and adverse FX. The actual EPS loss of '-0.25' was better than the estimated loss of '-0.35'. The free operating cash flow came in at a positive EUR 111 million. CapEx after 9M was EUR 556 million, higher year-over-year due to increased expenditures in the Performance Materials segment.

Publication Date: Nov -03

📋 Highlights
  • Acquisition of HDI Production Facilities:: Covestro to acquire Vencorex's HDI facilities in Thailand and U.S. for value accretion, enhancing aliphatics production footprint and coatings/adhesives market position, with EBITDA addition of low double-digit million euros and synergies up to high double-digit euro millions over five years.
  • Q3 2025 Sales Decline:: Sales dropped 1.5% to EUR 3.2 billion due to negative pricing and FX effects, with EBITDA falling 15.7% to EUR 242 million from supply-demand imbalances, pricing, and lower volumes.
  • Free Operating Cash Flow:: Positive EUR 111 million in free operating cash flow, despite CapEx rising to EUR 556 million year-to-date, driven by Performance Materials segment expenditures.
  • Net Debt Increase:: Total net debt surged EUR 292 million YoY, with a net debt-to-EBITDA ratio of 3.8x as of September 2025.
  • 2025 EBITDA Guidance:: Narrowed to EUR 700–800 million, with free operating cash flow projected at EUR -400 million to -200 million, reflecting ongoing market headwinds and the XRG transaction closure expected by December 2.

Acquisition and Strategic Developments

Covestro signed a value-accretive transaction to acquire HDI derivative production facilities from Vencorex, expected to close in Q1 2026. The deal enhances Covestro's global aliphatics production footprint, particularly in the U.S. and Asia Pacific, and strengthens its position in the coatings and adhesives market. As Christian Baier, Covestro's CFO, noted, the acquisition is expected to deliver financial value through a low double-digit million euro EBITDA addition and synergies of up to high double-digit euro million amounts within the next 5 years.

Guidance and Leverage

Covestro narrowed its FY 2025 guidance, with an expected EBITDA of EUR 700 million to EUR 800 million and a free operating cash flow of EUR -400 million to EUR -200 million. The total net debt increased by EUR 292 million compared to the end of 2024, resulting in a total net debt-to-EBITDA ratio of 3.8x. Analysts estimate next year's revenue growth at 2.8%.

Valuation and Outlook

With a P/E Ratio of -29.44 and an EV/EBITDA of 15.81, the market seems to be pricing in significant challenges for Covestro. The Net Debt / EBITDA ratio of 3.5 is also a concern. However, the acquisition of HDI derivative production facilities and the expected synergies could potentially improve the company's financial performance in the long run.

3. NewsRoom

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Covestro and XRG receive final outstanding regulatory approval for strategic partnership

Nov -21

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Covestro (XTRA:1COV): Evaluating Fair Value After Recent Share Price Uptick

Nov -17

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EU Conditionally Clears $13.7 Billion Adnoc-Covestro Deal

Nov -14

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Mechanical Recycling of Plastics Market Size | Companies Analysis 2025-2034

Nov -05

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Bio-based Coatings Global Industry Report 2024-2030, Profiles of Major Companies - BASF, Covestro AG, Akzo Nobel N.V., Arkema, and Axalta Coating Systems

Oct -16

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Adnoc Offers Concessions to End EU Probe of $13.7 Billion Covestro Deal

Oct -06

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Is Now the Right Time to Reassess Covestro After Mubadala’s Partial Takeover Approach?

Sep -15

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Covestro shares climb as ADNOC plans EU concessions

Sep -11

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4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (3.99%)

6. Segments

Solutions & Specialties

Expected Growth: 4.5%

Covestro AG's Solutions & Specialties segment growth of 4.5% is driven by increasing demand for sustainable and innovative materials in the automotive, construction, and electronics industries. Strong sales of polyurethane coatings and adhesives, as well as growing adoption of sustainable polyol solutions, contribute to this growth.

Performance Materials

Expected Growth: 3.5%

Covestro's Performance Materials segment growth of 3.5% is driven by increasing demand for sustainable and energy-efficient solutions, particularly in the automotive and construction industries. Additionally, the company's focus on innovative polyurethane-based materials and strategic partnerships contribute to its growth momentum.

All Other

Expected Growth: 2.5%

Covestro AG's 2.5% growth in All Other segment is driven by increasing demand for sustainable and innovative materials, expansion into new markets, and strategic partnerships. Additionally, the company's focus on digitalization and operational efficiency has led to cost savings and improved profitability.

7. Detailed Products

Polyurethanes

Raw materials for flexible and rigid foams, coatings, adhesives, and sealants

Polycarbonates

High-performance plastics for optical media, electrical components, and automotive parts

Coatings, Adhesives, Specialties

Raw materials for coatings, adhesives, and specialties for various industries

Thermoplastic Polyurethane (TPU)

Flexible and rigid TPU for various applications

Raw Materials for Polyurethane Systems

Isocyanates, polyols, and other raw materials for polyurethane systems

8. Covestro AG's Porter Forces

Forces Ranking

Threat Of Substitutes

Covestro AG operates in the chemical industry, where substitutes are available, but they are not easily accessible. The company's products are specialized, and substitutes would require significant investment and development.

Bargaining Power Of Customers

Covestro AG's customers are mainly industrial companies, which have limited bargaining power due to the specialized nature of the company's products.

Bargaining Power Of Suppliers

Covestro AG relies on a few large suppliers for raw materials, which gives them some bargaining power. However, the company's size and global presence mitigate this power to some extent.

Threat Of New Entrants

The chemical industry has high barriers to entry, including significant capital investment and regulatory hurdles. This makes it difficult for new entrants to compete with Covestro AG.

Intensity Of Rivalry

The chemical industry is highly competitive, with several large players competing for market share. Covestro AG faces intense rivalry from companies like BASF, Bayer, and others.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 29.50%
Debt Cost 3.95%
Equity Weight 70.50%
Equity Cost 9.05%
WACC 7.54%
Leverage 41.84%

11. Quality Control: Covestro AG passed 2 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

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Quality: 4.1

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Covestro

A-Score: 4.4/10

Value: 6.8

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Yield: 2.5

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Quality: 5.1

Yield: 1.9

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A-Score: 3.3/10

Value: 4.1

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

59.16$

Current Price

59.16$

Potential

-0.00%

Expected Cash-Flows