Credit deflation and the reflation cycle to come.

[Bricormortis]

33 minutes ago, feed said:

I think the people in general not owning a passenger car at all, exists in the future.  So the question will be how do the service providers recharge.  

The complete service provision by manufacturer, is probably the route preferred by the manufacturer, but there are other orgs that benefit from a refueling/recharging industry. And if it's not complete service provision, then it will be, the uber drivers need somewhere to recharge that’s close to their clients and the delivery drivers need a recharge within/close to a central distribution point.

Now, I’ve no idea really if the supermarkets will pick this up or not and I’m really just sharing some of the speculation I’m hearing.  That there is an opportunity in the service provided whilst the car is charged.  Not the charging itself.  

The best tech solution isn’t always the solution that gets implemented. Nor does the best solution for the consumers. But electric vehicles are a certainty.        
 

I have  been reading bits and pieces about hydrogen vehicles being the future 10 years out.

[feed]

22 minutes ago, Ponty Mython said:

As I recall, Ford tried this strategy under Jac Nasser in the late 90s/early 00s? That didn't end well...

It’s interesting you make that comparison and looking at what he tried to do, just shows just how fundamentally different the auto industry is today.  The idea that Ford would stop producing passenger cars in the US, would have been utterly incomprehensible at the time.  

Now I personally don’t think the complete service provision model would work today, the infrastructure isn’t really there, yet.   But maybe it does get built with electrification as dgul suggests.  But the way things are moving and the industry is being disrupted, we’ve passed peak car ownership and whomever provides the transport services, uber or whatever uber for delivery is.  They will operate differently to traditional car owners.          
 

[sancho panza]

If rates go negative.Credit deflation becomes inevitable.The evidence is there for all to read.When japan went 30 years ago,it was the only country that did which meant it was the only one playing the 'depreciate your currency' strategy.There'll be facing some competition from hereonin.

Makes you wonder if Germany leaving the Euro isn't that outlandish..........

Great explanation of how NIRP destroys the banks utility function to an economy through eroding margins by Wolf Richter

 

https://wolfstreet.com/2019/08/21/how-negative-interest-rates-screw-up-the-economy/

How Negative Interest Rates Screw Up the Economy

by Wolf Richter • Aug 21, 2019 • 14 Comments • Email to a friend

Now they’re clamoring for this NIRP absurdity in the US. How will this end?

This is the transcript from my podcast last Sunday, THE WOLF STREET REPORT:

Now there is talk everywhere that the United States too will descend into negative interest rates. And there are people on Wall Street and in the media that are hyping this absurd condition where government bonds and perhaps even corporate bonds, and eventually even junk bonds have negative yields. All of that NIRP absurdity is already the case in Europe and Japan.

There is now about $17 trillion – trillion with a T – in negative yielding debt in the world, government and corporate debt combined.

This started out as a short-term emergency experiment. And now this short-term emergency experiment has become the new normal. And now more short-term emergency experiments need to be added to it, because, you know, the first batches weren’t big enough and haven’t worked, or have stopped working, or more realistically, have screwed things up so badly that nothing works anymore.

So how will this end?

The ECB rumor mill over the past two weeks hyped the possibility of a shock-and-awe stimulus package, on top of the shock-and-awe stimulus packages the ECB has already implemented, namely negative interest rates, liquidity facilities, and QE.

The entire German government bond market, even 30-year bonds have negative yields. And the German economy shrank in the last quarter. That gives Germany two out of the last four quarters where its economy shrank – despite negative interest rates from the ECB and despite the negative yields on its government bonds, and despite the negative yields among many corporate bonds.

In other words, the German economy, the fourth largest in the world, is hitting the skids despite or because of negative yields. And now the ECB wants to flex its muscles to get yields to become even more negative.

And there are folks who want to prescribe the same kind of killer application to help out the US economy – which is growing just fine.

Since the ECB’s shock-and-awe package started to appear in the rumor mill at the beginning of August, the European bank stock index – it includes banks in all EU countries, not just those that use the euro – well, since that shock-and-awe rumor appeared, the stock index for those banks has dropped 11%.

Negative interest rates are terrible for banks. They destroy the business model for banks. They make future bank collapses more likely because banks cannot build capital to absorb losses. But banks are a crucial factor in a modern economy. It’s like an electric utility. You can somehow survive without electricity, but a modern economy cannot thrive without electricity. Same thing for the role commercial banking plays.

So that 11% drop of the bank-stock index wasn’t from some bubble high, but from a hellishly low level. The index is now down 78% from the peak in 2007. And it’s back where it had first been in 1990. So that was, let’s see, nearly three decades ago.

European banks are sick, sick, sick. And with negative yields, they’re getting the exact opposite of what they need. No wonder that bank stocks reacted skittishly to the threat of more deeply negative interest rates.

In Japan, same thing. Japan used QE to bring down interest rates long before the term QE was even used. And Japan has had near-zero or below zero interest rates for 20 years. But the bank index has fallen 8% since August 1, when the renewed stimulus rumors started, and closed on Friday at a new multi-year low. And the index is down 73% from where it had been in 2006.

I didn’t even want to look at the bank index going back to Japan’s bubble years in the 1980s. Because that would have been masochism. But I did look. The TOPIX Banks Index peaked at 1,500 in 1989, and now it’s at 129. Let that sink in for a moment: It has plunged by 91% over those 30 years.

So zero-percent interest rates and worse, negative interest rates, are terrible for banks for the long term. And because they’re bad for banks, by extension, they’re also bad for the real economy that relies on banks to provide the financial infrastructure so that the economy can function.

Commercial banks need to take deposits and extend loans. That’s their primary function. This credit intermediation, as it’s called, is like a financial utility. One bank can be allowed to fail. But the banking system overall cannot be allowed to fail. That would be like the lights going out. . there needs to be special regulations, just like there are regulations on electric utilities.

And banks need to make money with their primary business. The profit motive needs to make them aggressive on lending, and the fear of loss needs to make them prudent. Those two forces are supposed to balance each other out over time, with banks swinging too far in one direction and then too far in the other direction as part of the normal business cycle.

And this generally works, with some hiccups, as long as banks can do this profitably – meaning they make enough money and set aside enough capital during good times to be able to eat the losses during bad times without collapsing.

In this basic activity, banks make money via the difference between the interest rates they charge on loans to their customers and their cost of funding those loans. This cost of funding is mostly a function of the interest the bank pays on its deposits, on the bonds it has issued, and the like.

If interest rates go negative, the spread the bank needs in order to make a profit gets thinner. But risks get larger because prices of the assets used as collateral have been inflated by these low interest rates. At first this is OK, but over a longer period, this equation runs into serious trouble.

Negative interest rates drive banks to chase yield to make some kind of profit. So they do things that are way too risky and come with inadequate returns. For example, to get some return, banks buy Collateralized Loan Obligations backed by corporate junk-rated leveraged loans. In other words, they load up on speculative financial risks. And as this drags on, banks get more precarious and unstable.

This is not a secret. The ECB and the Bank of Japan and even the Swiss National Bank have admitted that negative interest rates weaken banks. The ECB has even been talking about a strategy to “mitigate” the destructive effects its policies have on the banks.

So that’s the issue with negative interest rates and banks. They crush banks.

In terms of the real economy, negative interest rates have an even more profoundly destructive impact: They distort or eliminate the single-most important factor in economic decision making – the pricing of risk.

Risk is priced via the cost of capital. If capital is invested in a risky enterprise, investors demand a larger return to compensate them for the risk. And the cost of capital for the risky company is higher. If capital is invested in a low-risk activity, the return for the investor and the cost of capital for the company should both be lower. And the market decides how that pans out.

But if central banks push interest rates below zero, this essential function of an economy doesn’t function anymore. Now risk cannot be priced anymore. The perfect example of this: Certain junk bonds in Europe are now trading with a negative yield. This shows that the risk-pricing system in Europe is kaput.

When risks cannot be priced correctly anymore, there are a host of consequences – all of them bad over the longer term for the real economy. It means malinvestment and bad decision making; it means overproduction and overcapacity. It means asset bubbles that load the entire financial system up with huge risks because these assets are used as collateral, and their value has been inflated by negative yields.

So you get these strange combinations – for example, of massive housing bubbles in cities like Berlin and Munich and other places, while at the same time Germany has one foot in a recession.

And as a remedy to this situation caused in part by negative interest rates, the ECB wants to do a new shock-and-awe package, on top of the ones it has already done, driving interest rates even deeper into the negative.

The longer negative interest rates persist, the more screwed up an economic system becomes. And the more deep-seated the dysfunction is, the harder it is for this economic system to emerge from this screwed-up condition without some kind of major reset.

And a major reset is of course precisely what every central bank fears the most.

How will this end? No one knows because no one has ever done this before. But we have some idea: So far, the outcomes are already bad, and now, because the outcomes are already bad, they’re wanting to drive interest rates even lower to deal with the bad outcomes that these low interest rates have already caused.

When you start thinking about it long enough, cooking up negative interest rates is like making hugely important economic decisions purposefully in the worst possible way, in order to disable the proper functioning of the economy. And when the economy stops functioning properly, these folks are surprised and then cook up even more deeply negative interest rates to solve the problem these negative interest rates have already caused.

It’s like watching some cheap slapstick farce, and you want to laugh at all this idiocy going on in Europe and Japan. But this isn’t a farce. It’s central bank policy making in all its glorious worst.

[DoINeedOne]

As others asked for....

[Barnsey]

1 hour ago, JMD said:

Barnsey, that's interesting plan, but i'm confused - aren't TLT and IBTL both 20year+ US treasuries? ...Or is there a subtle (but crucial market) difference between them?

They are indeed JMD, IBTL essentially "international access to TLT". You want to be avoiding unnecessary FX fees. I should have said IBTL for both to avoid confusion, apologies, I read far too many U.S. posts 

Saying that, it's TLT I've got my eyes on from a technical perspective to avoid risk of FX fluctuations clouding things.

[Barnsey]

3 hours ago, feed said:

So the story is, it’s the supermarkets that will be making a play for investing in the electric vehicle recharging infrastructure.
 
1.    Space.  Large car park spaces, out of town and often close to major transport lines, A roads etc…  
2.    Existing large contracts with energy producers  
3.    Reduced opportunity for mergers and looking to differentiate from the discounters 
4.    Draw in to physical locations to compete with online delivery  - my local Sainsbury has a pharmacy, Argos, spec savers, shoe repair, as well as their own café area and refueling.  
5.    Setup as hubs for distribution from the uber-isation of delivery services.  

I’ve no idea if this is just pure speculation at the moment and I’ve no idea if the tech exists to make this a viable option right now, re speed of recharge.  But I does raise the question.  Electric vehicles are absolutely the direction auto manufactures are going and the current refueling infrastructure needs investment.  Charging from home isn’t going to be the model as owning a passenger vehicle isn’t going to be the model.  So who owns it.  
 

Great post @feed, I think many are underestimating the auto makers foresight (some at least), reminds me of this news released end of last year (again, another reason I'm bullish VW long term)

https://www.tescoplc.com/news/2018/tesco-and-volkswagen-provide-the-largest-retail-electric-vehicle-charging-network-in-the-uk/

[Harley]

9 hours ago, DurhamBorn said:

@Harley on Germany can you run the rule over Solvay SA.........

OK, why not make this a group collaborative effort, one stock at a time.  To see what the folk here look at, level of detail, etc.  So I'll put some thoughts out there for discussion only so please don't do anything off this but DYOR, check the data yourself, etc.  No liability accepted.  Using Morningstar data and my own charting feed.  I went a bit overboard on this one but am not sure I fully addressed the exam question!

SOLVAY SA

Background

Listed on the Frankfurt stock exchange (SOL), a chemicals company operating in Advanced Materials (the main sector), Advanced Formulations, Performance Chemicals, and Corporate and Business Services.  EUR9bn capitalisation, 25k employees, EUR11bn revenue, and 4.25% yield.  Would be interesting to compare it with the other runners and riders in the sector.

Financial Highlights

Reasonably flat 5 year revenue around the EUR11bn level.  However a steady YOY slight improvement in operating income before interest and taxes.  This has followed through to net income with an upside blip in 2017 due to a large reduction in the tax provision.  EPS has followed suit.  Lots going on in the balance sheet in 2015 with a EUR3bn increase in shareholder equity (including a EUR1.5bn increase in paid in capital, no data for the rest, but see later) and a EUR4.5bn increase in total liabilities (including a EUR4bn increase in long term debt (no analysis available) and a EUR1.1bn increase in the deferred tax liability).  The asset side showed a EUR5bn increase in intangibles (acquisition goodwill in Germany?) and a EUR1.6bn increase in fixed assets (PPE) for that year  The total asset picture has declined since 2015, ending with a small uptick in 2018.  Operating cash flow has remained around EUR1.6bn to EUR1.8bn in the last 5 years except for a dip in 2015.  Again 2015 was the year for cash flow with EUR5bn spent on acquisitions (but where's the cash flow?) and EUR2.4bn received from stock issues and EUR3.4bn from "other financing activities" (hate a large "other" figure!).  Reasonably steady operating cash flow, CAPEX and FCF over the last 5 years, except for a one off halving in FCF in........yes, 2015!  Steady rising dividend payout.  Dividend cover not shown.  Dividend covered by FCF for the last 5 years but lots of stock issuance and other financing activities also going on at this time.  If I'm reading the Efficiency Metrics such as Days Sales Outstanding correctly, things overall seem to have been improving since 2015.  Same for the Financial Health metrics.   Please note, I have not checked these figures.

Technical Highlights

The monthly chart shows a rising support line since the 2009 low (a series of steps) but this trend broke down late 2018 and that trend line may now be overhead resistance.  However momentum may be starting to bottom.  So a bit of a crux point.  A bit like the DAX, although we're now seeing a divergence.  The last rally between 2012 and 2015 is marked by a later stage pronounced descending triangle in the stochastics leading to a 40% drop in share price at the end of that rally in 2015.  All in 2015 was a turbulent year and the rally prior to that off the 2009 low may have been a relief rally from a very oversold state, across the markets.  The last rally from 2016 was relatively short, followed by a relatively longer period of decline.  

Summary

For me, and me alone, a reasonably Steady Eddy company in a cyclical sector with a bit of excitement in 2015 but pays its way and delivers a reasonably (to date) stable, if not exciting, dividend yield.  Regarding any macro upside, I'll bow and listen intently to you!   Maybe something for me to look at if I had EURs in hand, else I might wait for GBP to strengthen (but then the yield would be less) while taking the time to see how the chart pans out.

Again, for discussion only (DYOR).  Other comments for discussion, things to look at, etc?  Would be interesting to see what you folk look for in such things.

 

[Barnsey]

1 hour ago, Ponty Mython said:

Sainsbury's in Winchester has a few dedicated Tesla recharging bays, other stores may well offer the same. No idea how it works, but the theory of a fast-charge whilst spending half an hour shopping has appeal. On the other hand, how many times a week does the average bod visit the supermarket for half an hour? I suppose if the stores are whoring out their parking spaces beyond shoppers, there could be mileage in the idea (no pun intended).

Need to get fast food or even sit down chains back into Supermarkets on a large scale as is the case in many other countries, Walmarts usually have a McDonald's but here in blighty many seem to have closed at Asda stores and they've gone back to having their own caf'.

[Harley]

56 minutes ago, DoINeedOne said:

As others asked for....

Ta.  No messing around with the title then!

[feed]

23 minutes ago, Barnsey said:

Great post @feed, I think many are underestimating the auto makers foresight (some at least), reminds me of this news released end of last year (again, another reason I'm bullish VW long term)

https://www.tescoplc.com/news/2018/tesco-and-volkswagen-provide-the-largest-retail-electric-vehicle-charging-network-in-the-uk/

Interesting I hadn’t seen that.  And I think you’re right to be bullish on VW

https://media.ford.com/content/fordmedia/fna/us/en/news/2019/07/12/ford-vw.html 

/ Ford to Use Volkswagen’s MEB Electric Vehicle Architecture for 600,000 Vehicles

Ford plans to design an all-new, MEB-platform-based EV model, which starts arriving in 2023, in Köln-Merkenich, Germany. Volkswagen will supply MEB parts and components as part of the collaboration. Both companies also will continue to target additional areas where they can work together on electric vehicles – a key strategic priority for both companies as they drive to accelerate the transition to sustainable and affordable mobility. The agreement with Ford is a cornerstone in Volkswagen’s electric strategy, supporting the growth of the e-mobility industry and facilitating global efforts to reach the Paris 2050 Agreement. / 

 

 

[Agent ZigZag]

Can someone briefly explain to me the mechanism how Central banks can inject liquidity into the system and are able to by pass the main banks and give direct to government, who in turn can spend directly into the economy thereby creating inflation. Also what early signs will there be to show us who are the main benefactors if the money taps are turned on .

The general consensus from City boys I chat to all agree that Central banks will print again but it will be given to the banks and therefore will just be more of the same. It is interesting that few see significant inflation around the corner that is the opposite premise of this thread.

[Majorpain]

23 minutes ago, Agent ZigZag said:

The general consensus from City boys I chat to all agree that Central banks will print again but it will be given to the banks and therefore will just be more of the same. It is interesting that few see significant inflation around the corner that is the opposite premise of this thread.

Government builds 100 new schools and 30 new hospitals as an example paid for from departmental budgets, direct demand injection into the construction companies and their supply chain.  The workers then go and spend that money in other areas of the economy increasing demand.

Banks are not the problem at the moment, its money velocity as too much is tied up in assets like housing.

[Harley]

1 hour ago, Harley said:

Listed on the Frankfurt stock exchange (SOL),

Very confused.  Took the German lead from DB, and shows it's listed there (FRA) but may be Euronext listed (Belgium)!  SOL v SOLB!

Blooming foreigners.  Maybe I should stick to the sensible FTSE after all!

[Loki]

4 hours ago, feed said:

So I’ve followed this thread from the other site, never really commented as I’ve never had anything to contribute. ..

Fantastic and thought-provoking post. I can deal with info like this. I am not a numbers man (Yet).  Thank you

[Agent ZigZag]

42 minutes ago, Majorpain said:

Government builds 100 new schools and 30 new hospitals as an example paid for from departmental budgets, direct demand injection into the construction companies and their supply chain.  The workers then go and spend that money in other areas of the economy increasing demand.

Banks are not the problem at the moment, its money velocity as too much is tied up in assets like housing.

Thanks for the reply Majorpain. I get the above, but its before such events take place. Its a bit like a shell game as who has got the money. If its the government then I know which likely way its to be spent and can invest accordingly. Do they publish a government Fiscal Budget Policy or such like? 

[Democorruptcy]

3 hours ago, sancho panza said:

A fate that awaits many cities in the UK imho as the pool of willing council tax payers shrinks and the growing demands (in terms of social care,social provisions,council pensions etc etc)  are shifted onto those who remain.

I currently live 200metres outside the city and the council tax is  £300 cheaper.Sadly,more and more people are leaving.Large swathes of the city now now are for student lettings,which obviously depends on a never ending supply of suckers with a £50k loan to sustain them.Those areas will become real holes given the state of repair of a lot of the housing.

Other areas are ghettoes for want of a better phrase.Police go in in two's.I regularly work in Birmingham and I see similar shift away from the city occuring.

Do you mean you are under a different council to the city centre? What you pay goes on the band of the property not metres from the centre?

Scotland whacked their council tax up in 2016 for Band's E to H, no doubt England will do something similar.

[Majorpain]

23 minutes ago, Agent ZigZag said:

Thanks for the reply Majorpain. I get the above, but its before such events take place. Its a bit like a shell game as who has got the money. If its the government then I know which likely way its to be spent and can invest accordingly. Do they publish a government Fiscal Budget Policy or such like? 

Yes, (current) annual department spending is available online.  All that will happen is the Treasury will go "you know how you only have a £10bn budget?  You now have £20bn.  Spend it".  Politicians love spending other peoples money!

[DurhamBorn]

7 hours ago, Democorruptcy said:

Don't forget the dividend withholding tax.

Yeah not sure how that works on EU ones.

[DurhamBorn]

1 hour ago, Agent ZigZag said:

Can someone briefly explain to me the mechanism how Central banks can inject liquidity into the system and are able to by pass the main banks and give direct to government, who in turn can spend directly into the economy thereby creating inflation. Also what early signs will there be to show us who are the main benefactors if the money taps are turned on .

The general consensus from City boys I chat to all agree that Central banks will print again but it will be given to the banks and therefore will just be more of the same. It is interesting that few see significant inflation around the corner that is the opposite premise of this thread.

They buy gilts in the open market with printed money.Government issues new gilt at 0.98%.BOE buys it.In affect the governments debt goes up,but the coupons are tiny,and most of it goes back to the government anyway.Lots of debt will sit on the BOE balance sheet,but after an inflation cycle it wont look as bad.

[Democorruptcy]

6 minutes ago, DurhamBorn said:

Yeah not sure how that works on EU ones.

Longtomsilver might be along shortly to tell you all about Daimler. It's another thread somewhere.

[DurhamBorn]

54 minutes ago, Harley said:

Very confused.  Took the German lead from DB, and shows it's listed there (FRA) but may be Euronext listed (Belgium)!  SOL v SOLB!

Blooming foreigners.  Maybe I should stick to the sensible FTSE after all!

The reason it makes my list Harley is they have a good sized business in oilfield chemicals.I see that as a likely big winner in the next cycle.So something that has done ok the last 5 years,plodding along is actually a very very good sign.The business should be able to take advantage of the reflation.

Cargotec is another i really like once the bust is over.Pretty much everything they make is for moving items in construction,ports,timber etc.Could be a real gem in a reflation.

I must admit i forgot all about withholding tax and have no idea how that works if owning these stocks in an ISA or SIPP and how much it lowers the yields.

[DurhamBorn]

@Cattle Prod i very interested in the sector and agree it should do very well.I havent looked in depth yet but plan to.My interest in Cargotec is because they make a lot of the equipment for the logging industry.

Oh and on natural gas,i think it might be the next best performing asset after silver.Could get smashed lower first though.

[Majorpain]

2 hours ago, Harley said:

SOLVAY SA

For me, and me alone, a reasonably Steady Eddy company in a cyclical sector with a bit of excitement in 2015 but pays its way and delivers a reasonably (to date) stable, if not exciting, dividend yield.  Regarding any macro upside, I'll bow and listen intently to you!   Maybe something for me to look at if I had EURs in hand, else I might wait for GBP to strengthen (but then the yield would be less) while taking the time to see how the chart pans out.

Again, for discussion only (DYOR).  Other comments for discussion, things to look at, etc?  Would be interesting to see what you folk look for in such things.

 

Nice easy to read financial reports on their website, if you can find the important stuff easily (actual company value/cashflow/Profit/Debt are things i look at first) then they are probably not trying to hide anything.  Comes with a caveat that the bigger the business the more compex the accounts, so its far from a golden rule.  Companies legally have to report bad news after all, but they can make you work to find it!

I have to say im not madly keen seeing 5Bn of goodwill with 10bn of market cap, anyone can overpay for things and mark it up as an asset, if you can get anyone to actually pay that amount for it is another matter.  Only thing that ive noticed is FCF H1 2019 was only 33m with continuing operations, H1 2018 was loss of 18m.   

https://www.solvay.com/en/press-release/eu-commission-clears-solvays-polyamides-divestment-basf

The polyamide business they sold was a good little earner that made the figures look much better, BASF who were on the list bought it.

[Harley]

1 hour ago, DurhamBorn said:

Yeah not sure how that works on EU ones.

https://www.gov.uk/government/publications/calculating-foreign-tax-credit-relief-on-income-hs263-self-assessment-helpsheet/hs263-calculating-foreign-tax-credit-relief-on-income-2017

And more on the net.

I use TaxCalc which does most of the calculations for my tax return.

However, since the first £5k or whatever of divs are free of UK tax, presumably you cannot claim any foreign tax back incurred on that amount?

An ISA or SIPP would presumably be problematic?

It may be more tax efficient to use a fund, ETF, or whatever?

[Harley]

43 minutes ago, Majorpain said:

Nice easy to read financial reports on their website, if you can find the important stuff easily (actual company value/cashflow/Profit/Debt are things i look at first) then they are probably not trying to hide anything.  Comes with a caveat that the bigger the business the more compex the accounts, so its far from a golden rule.  Companies legally have to report bad news after all, but they can make you work to find it!

I have to say im not madly keen seeing 5Bn of goodwill with 10bn of market cap, anyone can overpay for things and mark it up as an asset, if you can get anyone to actually pay that amount for it is another matter.  Only thing that ive noticed is FCF H1 2019 was only 33m with continuing operations, H1 2018 was loss of 18m.   

https://www.solvay.com/en/press-release/eu-commission-clears-solvays-polyamides-divestment-basf

The polyamide business they sold was a good little earner that made the figures look much better, BASF who were on the list bought it.

Noticed this on Morningstar (once I went to SOLB!):

"Belgium-based Solvay has largely completed its transformation to a specialty chemicals company, although there are still some commodity chemicals where the company has a leading market position, notably soda ash and peroxides. However, we still don't see a moat, given that high capital intensity continues to weigh on ROIC, leaving us with limited confidence in the company's ability to generate sustained returns above the cost of capital. A EUR 150 million cost-cutting plan was announced in 2018 to adjust the company's cost base to its new, leaner business portfolio. Successful execution of said program, with some evidence that current high margins have staying power in an economic slowdown, would go far in building our confidence around a potential moat for Solvay". 

I could already see some cost cutting in the figures.  Totally agree about the intangibles.  They were 37% of total assets in 2018.  That was a very common feature when I looked at the FTSE.  I'm more of a going concern valuation type so am reluctant to give such things much value for the same reason as you state, especially with what may be coming.