UBS upgrades Novonesis to “buy,” cuts Kerry to “neutral” on growth outlook

Investing.com -- UBS Global Research has upgraded Novonesis to “buy” from “neutral” and downgraded Kerry Group to “neutral” from “buy” in a shift of preferences within the global consumer chemicals and ingredients sector.

The upgrade of Novonesis is underpinned by strong first-quarter results and improved confidence in the sustainability of its post-merger performance. 

UBS forecasts 8.3% organic sales growth for Novonesis in 2025, the highest among its coverage excluding AAK. Volume growth for the company is projected at 7.3%, also the highest across the sector. 

Novonesis’ EBITDA margin of 38.3% in Q1 FY25 and expected 36.1% for the full year 2024 significantly outpaces the peer average of 20.9%. 

These factors support a valuation rerating, with UBS raising its price target to DKK 530, representing an 18% increase from the prior estimate.

UBS views the first-half 2025 results, due August 21, as a likely positive catalyst. The firm expects an organic sales growth beat for Q2 and anticipates upward revision to medium-term financial targets. 

UBS believes the shares still offer upside, with valuation metrics trading below long-term averages despite Novonesis’ superior growth and margin profile.

Conversely, Kerry’s downgrade reflects limited short-term earnings momentum. Despite forecasting a solid 9% EPS CAGR for 2025–2028, UBS sees minimal potential for earnings upgrades over the next year. 

The company’s reliance on the U.S. market, where it derives about 39% of revenue, adds to caution amid fragile consumer confidence. 

Volume growth for 2025 is projected at 3.6%, broadly in line with consensus, and adjusted EPS is forecast at €5.01.

Kerry currently trades at a 17.8x forward P/E, an 18% discount to its 10-year average and 19% below sector peers. 

UBS has raised its price target slightly to €107, citing foreign exchange benefits, but does not expect a rerating in the near term without a clear catalyst.

DSM-Firmenich remains UBS’s top sector pick, with Novonesis now positioned as the second most preferred stock.