IMCD (1K) | Buy | Returning to compounding growth

Research evidence excerpt

IMCD (1K) | Buy | Returning to compounding growth

IMCD Buy | Target Price: EUR99.00

Impact from the supply disruption caused by the Middle East conflict

The Middle-East conflict is supportive for distributors at the margin, but it is not a Covid-style

profit event. Management was clear that customer behaviour has changed since the pandemic.

During Covid, supply shortages, pent-up demand and aggressive restocking led to a major

inventory overbuild, followed by a long destocking period.

This time, pre-buying has been modest. Customers appear more cautious and are not rebuilding

inventory aggressively. That limits the near-term volume upside for IMCD. There has been some

pressure in selected base commodities, such as methanol, but this is not IMCD’s core market.

The pricing impact is mixed. Fuel surcharges have been passed through quickly and transparently

to customers. Product-cost increases are slower because suppliers are reluctant to raise prices

too aggressively when end-demand is weak. Management noted that suppliers do not want to lose

market share or “destroy demand” for the longer term. This means IMCD should be able to protect

transport-related costs, but it is unlikely that we will see a broad gross-margin windfall from

product inflation.

Risk and opportunities from intensifying Chinese competition

As also discussed in our sector report, Chinese competition is becoming more relevant because

Chinese producers are moving up the value chain. This is not a new issue in commodity chemicals,

but Chinese suppliers are increasingly active in semi-specialties and selected specialty products.

That matters because the closer Chinese producers move toward specialty products, the more