UBS upgrades IMCD to “neutral” as valuation reflects earnings pressures

Investing.com -- UBS has upgraded IMCD NV (AS:IMCD) to “neutral” from “sell,” citing that the company’s valuation now adequately reflects near-term earnings pressures, in a note dated Monday. 

Shares have fallen about 20% year-to-date and are trading at €112.40, near their historic trough multiple of around 13.5x FY’26e EV/EBITA, down 30% from the long-term average.

Despite the upgrade, UBS further revised its earnings forecasts downward. Adjusted EBITA for FY’25 and FY’26 was cut by 7% and 6%, respectively. 

New EBITA estimates are €535 million in FY’25 and €558 million in FY’26. Adjusted EPS forecasts dropped to €5.81 for FY’25 and €6.14 for FY’26, from previous estimates of €6.40 and €6.84. These forecasts now sit 2–6% below consensus.

The downgrade in expectations is driven by weakening volumes and declining gross profit per unit, particularly over Q2–Q3’25. 

Organic gross profit growth is now projected at just +0–1% year-on-year during this period, with tariffs impacting demand, oversupply in certain chemical markets, and tighter competition adding pressure.

Conversion margins are also expected to decline. UBS projects a drop to 42.9% in FY’25 from 44.2% in FY’24. 

Net income is forecast to fall from €373 million in FY’24 to €343 million in FY’25. The net debt position remains high at €1.3 billion in FY’25, though IMCD’s net debt-to-EBITDA ratio is expected to stay stable at 2.2x.

Valuation metrics place the stock at 19.4x FY’25e P/E, with a dividend yield of 1.8% and equity free cash flow yield of 5.6%. 

The revised price target was lowered from €128 to €122. UBS noted that IMCD’s share valuation now trades only in line with the global distribution peer group, compared to a historical premium of 45%.

In scenario analysis, UBS sees potential downside to €80 per share if volume disruption continues and margins deteriorate. 

Conversely, a recovery supported by resumed M&A activity and improved market demand could push valuation to €180 per share.

UBS maintains that IMCD remains a leader in the specialty chemical distribution market, with structural growth potential and a strong execution record, evidenced by a 17% adjusted EBITA CAGR from FY’15 to FY’24. 

A return to 6–8% organic EPS CAGR is forecast beyond FY’26, potentially reaching double digits with continued acquisitions.