Jefferies cuts 2 EU specialty chemical distributors as inflation tailwind fades

 Jefferies downgraded specialty chemical distributors IMCD and Azelis to Hold, saying a recovery to moderate, volume-driven growth and gradually improving margins looks largely priced in after recent share price gains.

Analyst David Kerstens cut his price target on Azelis to €13 from €15, reflecting a higher cost of capital of 10% from 9% based on stricter return criteria. He lowered IMCD to €115 from €122 on reduced earnings estimates.

Kerstens said the sector should benefit from "gradually normalising industry conditions," but that the tailwind from inflation is fading and the market is "waiting for volumes."

IMCD and Azelis shares fell 1.4% and 1.7%, respectively.

Azelis’ third-quarter earnings before interest, taxes and amortization (EBITA) rose 15% to €114 million, driven by 8.2% organic revenue growth and cost discipline. Gross margin was stable at 23.4%. Free cash flow fell 52% to €67 million on higher working capital, and leverage remained elevated at 3.5 times EBITDA against a target below 3 times.

A €350 million non-cash goodwill impairment on past Americas acquisitions overshadowed the recovery.

IMCD’s EBITA rose 18% to €140.2 million, with organic revenue growth of 5.5%, slowing from 7.5% in the second quarter as pricing stabilized. Growth in Europe, the Middle East and Africa slowed to 5.6% from 10.3%, while the Americas grew 1.5% and Asia-Pacific 9.9%. Gross margin rose 80 basis points to 25.1%, and leverage fell to 2.6 times from 2.8 times in December.

Both companies now guide to positive organic EBITA growth in 2026 despite uneven demand. Jefferies projects a 6% EBITA recovery for Azelis and 9% for IMCD.

Azelis targets high-single-digit EBITA growth, half organic and half from acquisitions that meet a return on invested capital above 11.5%. It does not expect to complete any acquisitions this year, as leverage and asking prices are too high.

Azelis shares are up 25% this year, ahead of the 12% gain for the EuroStoxx, and trade at 10.1 times 2026 estimated EV/EBITA, a 29% discount to their history and 27% below IMCD. IMCD is up 32% and trades at 13.7 times, a 16% discount to its history and a 36% premium to Azelis.