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Investing.com -- UBS Global Research downgraded ISS A/S (CSE:ISS) to “neutral” from “buy,” citing a more balanced risk-reward profile after a year-to-date share price increase of over 30%, in a note dated Monday.
The valuation now aligns with peers at approximately 10x FY26 estimated EV/EBITA, limiting further upside, according to analysts.
While the company has made strategic and operational progress, restoring EBIT margins above 5% in FY24 and winning several new contracts, UBS noted that most of these wins were small, contributing only around 0.1% of group revenue.
Simultaneously, recent quarterly trends suggest continued contract churn, casting doubt on a meaningful acceleration in organic growth.
UBS forecasts average organic growth at about 4% between FY25 and FY29, the lower end of ISS’s 4–6% target range.
The analysts raised their 12-month price target to DKr185 from DKr175, reflecting updated modeling that incorporates a significant ongoing share buyback.
Adjusted EPS forecasts rose by 5% to 17% over FY25 to FY27 due to these buybacks and higher near-term organic growth.
UBS now expects adjusted EPS to reach DKr16.73 in FY25, DKr19.19 in FY26, and DKr21.06 in FY27.
Adjusted EBITA is projected to rise modestly by 0–2% over the same period, with near-term pricing benefits partially offset by foreign exchange impacts and slightly lower mid-term margins.
EBITA is forecast at DKr4.43 billion in FY25, growing to DKr4.83 billion by FY27. EBITA margins are expected to remain stable at 5.1% through FY26, rising slightly to 5.2% by FY28–29.
UBS flagged that B2B service spending remains under pressure amid global policy uncertainty and cost inflation, challenging ISS’s ability to drive volume growth while holding its pricing stance. Pricing pass-through from wage inflation, a key driver of recent growth, is likely to fade beyond FY25.
The report also flagged potential upside if ISS recovers the DKr600 million it alleges was withheld by Deutsche Telekom (OTC:DTEGY) in FY24.
UBS forecasts free cash flow at DKr2.4 billion in FY25, in line with company guidance but below the upper end of the DKr2.4–3 billion range.
However, UBS cautioned that arbitration outcomes are inherently uncertain, and any ruling, expected by mid-July, carries unpredictable implications.
Leverage is projected to remain at around 2x through FY27, falling to roughly 1x by FY29.
Return on invested capital is forecast to improve steadily, from 15.2% in FY25 to 17.4% by FY29.
UBS values ISS using a discounted cash flow model, with a terminal growth rate of 1.5%, a terminal margin of 3.9%, and a weighted average cost of capital of 8.2%.