Novonesis: Catalyst Alert: Cash return optionality emerging - 1H26 results 20 August (positive)

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Novonesis: Catalyst Alert: Cash return optionality emerging - 1H26 results 20 August (positive)

Barclays | Novonesis

What the market is missing: We believe the market broadly understands that FY26 marks peak

capex and that leverage will decline thereafter. However, we do not believe investors are

currently discounting a meaningful change in shareholder returns. We believe there is scope for

a more progressive capital allocation framework once leverage moves comfortably below the

company's c1.5x target. On our estimates, maintaining FY27 leverage at 1.6x rather than

allowing leverage to fall to 1.2x could support approximately c€700m of incremental

shareholder distributions. A more aggressive 2.0x leverage framework (on the basis of sharper

FCF 2028-2029) could increase this to c€1.4bn, equivalent to roughly 5% of market

capitalisation. Neither potential outcome appears reflected in current expectations.

More importantly, explicit acknowledgement that today's elevated capex is temporary rather

than structural would reinforce confidence that Novonesis can return to being a high-growth,

high-cash-conversion compounder. We believe that combination remains underappreciated.

Valuation: Novonesis trades on c24x 2027E P/E, only a c8% premium to the broader European

Ingredients peer group despite a significantly more robust growth outlook, best-in-class

profitability and substantial free cash flow inflection potential.

Historically, Ingredients companies able to combine sustainable mid- to high single-digit

organic growth with strong shareholder cash returns have commanded significantly larger

premiums. A useful precedent is Chr. Hansen, which during its strongest free cash flow return

period from roughly 2012-16 frequently traded at a premium of more than 70% to the