Barclays sees a buying opportunity in this European sector

Investing.com -- European consumer ingredients stocks have experienced a difficult second quarter, with more top-line misses than beats and a wave of outlook downgrades triggering sharp share price declines.

The group has fallen an average of 8% since July, far outpacing the 1% cut in 2025 earnings estimates, leading to a de-rating from 25.5 times forward earnings in June to 21.7 times today.

According to Barclays, the sector’s premium to global staples has narrowed to just 10%, compared with a 10-year average of 35%.

The bank’s analysts said that while not all disappointments can be dismissed as one-offs, the extent of the de-rating leaves room for recovery.

“Our base case is the group can demonstrate sequential improvement in top-line growth in Q4 and exit rates into 2026 and, as a result, we are more inclined to see the de-rating since June as a potential buying opportunity,” analysts said in a Thursday note.

They highlighted DSM-Firmenich, Kerry Group and Novonesis (CSE:NSISb) as its favored names.

The bull case rests on several temporary headwinds that may fade, including sunscreen ingredient destocking, weak pet food demand, and order timing issues in Asia-Pacific.

Barclays also stressed enduring structural attractions, such as exposure to faster-growing local FMCG customers and pricing power from low-cost-in-use offerings.

Ingredients stocks now trade more than one standard deviation below their five-year average EV/EBITDA, offering relative value versus both global staples and industrial gases.

Even so, certain risks remain. The bear case points to rising pricing pressure across categories such as beauty care, fragrances, and pet nutrition, alongside the potential threat from AI enabling large customers to bring more R&D in-house.

Concerns over structurally weaker growth in packaged food—linked to GLP-1 adoption and regulatory scrutiny of ultra-processed foods—also weigh on sentiment.

Still, Barclays noted that more than half of the exposure for companies like Givaudan, Croda and Novonesis is outside packaged food, where reformulation and “clean label” demand could offset slowing volumes.

With easier comparisons ahead and signs that cyclical pressures may be temporary, the bank argues that recent weakness offers long-term investors an entry point into the sector.