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Investing.com -- Morgan Stanley downgraded Azelis (EBR:AZE) and Randstad (AS:RAND) in its latest assessment of the European Business Services sector, citing weakening fundamentals and valuation concerns across specialty chemicals distribution and staffing, in a note dated Wednesday.
Azelis, the Belgian-based specialty chemicals distributor, was lowered to “equal weight” from “overweight.”
Analysts said the company has suffered one of the steepest setbacks in the sector this year, with its shares down more than 33% since January.
The downgrade followed a 23% cut in consensus earnings estimates for 2025, far deeper than the 4% reduction for rival IMCD.
“Both stocks now trade on a similar multiple, despite higher leverage, a more limited track record and overhang from potential further large shareholder sell-downs at Azelis.,” Morgan Stanley said.
Azelis’ Best Business Models (BBM) ranking, which measures fundamentals such as returns, growth, balance sheet strength and cash conversion, also fell to 18 from 11 earlier in the year.
The brokerage noted that the shift reflected “lower organic growth and higher leverage,” further eroding the company’s relative position.
Valuation comparisons reinforced the move, Azelis trades at about 13.7x forward price-to-earnings, down from 18.7x over the past five years, and at roughly 9x EV/EBITDA. IMCD, which was upgraded to “overweight,” is now on 14.8x P/E and ~11x EV/EBITDA, a compression that brought the two closer together.
Historically, Azelis carried a four-turn discount to IMCD, but the gap has closed, leading the analysts to rotate their preference.
In staffing, Randstad was cut to “underweight” from “equal weight.” The Dutch recruitment firm has seen pressure on growth and margins, with Morgan Stanley highlighting “pricing normalization, a weak short-term outlook in the UK, French political uncertainty, further gross margin pressure and a potential structural impact from AI.”
The brokerage added that while blue-collar temporary hiring volumes had shown early signs of recovery, risks “looming that are not reflected in valuation, in our view.”
Randstad trades at 13x forward earnings, broadly in line with its five- and 10-year averages, but the firm’s share price has slipped 9% in the past six months.
Its price target was cut to €36 from €38, implying about 6.5% upside from its current €33.9 level.
By contrast, Adecco was upgraded to “equal weight,” with analysts noting better organic growth and margin momentum.
Morgan Stanley’s cautious stance on staffing reflects a sector-wide downgrade in earnings expectations.
Guidance revisions in the second quarter skewed to the downside, with Randstad among the companies lowering outlooks.
Its July update pointed to organic revenue decline of 2.3% against consensus expectations of -3.5%, with adjusted EBITA guidance about 2% below market forecasts.
The broader Business Services sector has shown wide divergence in performance this year, ranging from gains of 60% to losses of 35%.
Azelis and Randstad are firmly in the latter group. As the bank added, “we remain cautious on the entire staffing sub-sector” and see risks in specialty chemicals distribution that favor IMCD over Azelis.