IMCD NV "Clearer path to attractive profile; Upgrade to Buy" (Buy) Manion

Research evidence excerpt

IMCD NV "Clearer path to attractive profile; Upgrade to Buy" (Buy) Manion

upply chain stress helping to

neutralise the deflationary pressures that have weighed on subsector profitability for the last few

years. We therefore now see a viable path back to +HSD% organic EPS growth (+DD% if M&A

continues), as IMCD is the market leader in specialty chemical distribution markets which remain

structurally attractive. While price increases need to be carefully managed in a (still) delicate volume

environment, this profile is increasingly difficult to overlook on today's trough valuation. Buy.

EVIDENCE We have attempted to estimate and forecast key drivers as i) volumes, ii) GP/unit and iii) conversion

margins. Our analysis shows how GP/unit and conversion margins have historically correlated

positively with 'supply chain stress' indicators and higher inflation (e.g. during the pandemic-

impacted 2021-22). While companies demonstrate a strong track record of passing through, and in

many cases benefiting from, price inflation, this has typically been accompanied by some pressure on

volumes (given strong correlation to broader macro backdrop). We analyse the chemical distribution

industry structure and growth drivers, and benchmark IMCD's network and returns profile to peers.

WHAT´S PRICED IN? On our forecasts IMCD trades on a trough of c11x FY'27e EV/EBITA, which we estimate prices in +LSD

% mid-term earnings growth (vs. UBSe >6% organic EPS CAGR). This leaves IMCD on a c.-15%

discount to sector quality growth, well below its 10yr avg premium c.+25%. UBS HOLT Lens forecasts

a FY'26e CFROI of c24.5%, significantly above the current 'market implied' of c18%, and therefore

sees a c.+166% upside for IMCD (the 3rd highest in our EMEA Business Services coverage).

Upside/Downside