Street Calls of the Week
Investing.com -- UBS Global Research on Friday downgraded two major chemical distributors, citing deteriorating market conditions and sustained pressures on earnings across the sector.
Shares of Brenntag and Azelis were down 1.2% and 1.5%, respectively at 06:23 ET (10:23 GMT).
The brokerage pointed to weak end-market demand, overcapacity in the chemicals industry, and slowing growth trends as reasons for the changes.
UBS has cut its profit forecasts for Brenntag SE, reducing the estimates for fiscal years 2025 through 2027 by an average of 7%. This places the bank’s estimates in a range that is 4% to 11% lower than the consensus forecast.
The brokerage cut its price target for Brenntag to €45 and downgraded the stock to “sell.”
UBS said chemical market conditions are expected to remain challenging through the first half of 2026, with forecast organic gross profit (GP) a 5% to 6% decline in growth year-on-year in the second half of 2025, following a 4% contraction in the second quarter.
For fiscal 2026 overall, UBS projects a 1% decline in organic Gross Profit (GP) growth. Adjusted EBITA for fiscal 2025 is estimated at €947 million, below the company’s guidance of €950 million - 1.05 billion and below the €986 million consensus.
UBS noted that while Brenntag’s new management could target significant profit improvement in the medium term, there is little visibility on such plans for now.
The departure of senior executives, including the heads of Essentials and Specialties, adds to uncertainty.
UBS said the current valuation at about 11 times EV/EBITA already prices in some recovery, but forecast reductions and a higher weighted average cost of capital mean further downside is possible in the near term.
For the Belgium-based specialty chemical distributor Azelis Group, UBS downgraded its rating to “neutral” and lowered its price target to €12.5 from €17, citing continued deterioration in demand conditions.
The brokerage cut its Earnings Per Share (EPS) forecasts by 13% for fiscal 2025–2026. It added that its new adjusted EBITA estimates are now 3% to 8% below the market consensus.
UBS flagged tariff-related impacts on end-customer demand, oversupply in certain markets, and slowing growth trends as factors weighing on earnings.
Organic Gross Profit (GP) declines of about 5.5% year-on-year are expected in the third and fourth quarters of 2025, following a 3% decline in the second quarter.
UBS expects only flat trends in fiscal 2026, with a potential growth inflection more than 12 months away.
UBS also flagged slowing M&A activity at Azelis due to limited balance sheet headroom.
Net debt/EBITDA stood at 3.1x in June 2025, with leverage expected to remain above the company’s target range of 2.5-3x into year-end.
UBS projected year-end net debt of 3.3x or 2.9x excluding leases, with only modest deleveraging expected in fiscal 2026.
On valuation, UBS said Azelis’s current multiple of about 10 times FY’26e EV/EBITA already reflects ongoing earnings pressures, with little near-term catalyst to support a re-rating.