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Investing.com -- Berenberg has downgraded its rating on Azelis (EBR:AZE) to Hold from Buy, citing "short-term downside risks" that could limit the stock’s potential over the next year.
The bank also reduced its price target from €21 to €17.
Azelis shares fell 2.8% in European trading as of 13:38 GMT.
While Berenberg remains constructive on Azelis’s long-term equity story, it flagged several near-term headwinds including a lack of obvious positive catalysts, elevated leverage around 3x, weak Q1 results, and concerns over employee retention.
The broker also pointed out that “earnings risk [is] skewed to the downside,” with its 2025 adjusted EBITA estimate now 5% below Visible Alpha consensus.
Azelis announced an annualised €20 million cost-reduction programme after a weak start to the year, which Berenberg believes could “drive the best salespeople to competitors willing to offer better pay packages.”
The firm warned that reducing variable compensation may save costs in the short term but risks harming future growth by losing talent critical to its distribution model.
Overall, Berenberg believes Azelis remains a high-quality business with a strong cash generation profile and long-term upside potential, especially as a likely beneficiary of industry consolidation.
However, the lack of near-term earnings momentum and limited acquisition spend weighed on the downgrade decision.
“We see little upside in the short term,” analyst Carl Raynsford wrote, adding that Azelis trades at a 23% discount to historical EV/EBITDA multiples, suggesting much of the negative outlook is already priced in.
Azelis’s Q1 2025 performance underwhelmed, with organic gross profit growth of -0.6% and EBITA down 6.1%.
In contrast, IMCD (AS:IMCD) posted a 5.6% increase in organic gross profit and a 6.7% rise in EBITA. The divergence, according to Berenberg, stems from IMCD’s stronger positioning in pharma and coatings, as well as better geographical exposure, particularly in Latin America and India.
Still, Berenberg acknowledged Azelis’s operational strength, including its new sole distribution agreement for BASF Personal Care products in the U.S., effective July 1. But for now, the broker sees limited scope for rerating until earnings visibility improves.