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

UBS Global Research upgraded Novonesis to "buy" with a price target of DKK 530, citing strong Q1 results, superior growth and margin profile, and expectations for continued positive performance, forecasting 8.3% organic sales growth for 2025. Conversely, Kerry Group was downgraded to "neutral" due to limited short-term earnings momentum and reliance on the fragile U.S. market, despite a solid EPS CAGR forecast; the price target was slightly raised to €107, but a near-term rerating is not expected.

Analysis

UBS Global Research has recalibrated its stance on key players in the global consumer chemicals and ingredients sector, upgrading Novonesis to “buy” from “neutral” while downgrading Kerry Group to “neutral” from “buy.” The positive revision for Novonesis is driven by its robust first-quarter performance and increased confidence in the sustainability of its post-merger operating model. UBS projects Novonesis will achieve 8.3% organic sales growth and 7.3% volume growth in 2025, figures that lead its coverage universe (excluding AAK) and the broader sector, respectively. Novonesis’s profitability is also a standout, with a Q1 FY25 EBITDA margin of 38.3% and an expected 36.1% for the full year 2024, significantly exceeding the peer average of 20.9%. This financial strength underpins UBS's raised price target of DKK 530, an 18% increase, with the firm anticipating the August 21st first-half 2025 results to serve as a further positive catalyst, potentially including an organic sales growth beat for Q2 and upward revisions to medium-term targets. Despite its superior profile, Novonesis shares are noted to trade below long-term valuation averages. Conversely, Kerry Group's downgrade reflects concerns over limited short-term earnings momentum. While UBS forecasts a respectable 9% EPS CAGR for Kerry from 2025 to 2028, it sees minimal scope for earnings upgrades in the immediate future. The company's significant exposure to the U.S. market, accounting for approximately 39% of its revenue, is viewed as a headwind given fragile consumer confidence. Kerry's projected 2025 volume growth of 3.6% is aligned with consensus, and its shares trade at a 17.8x forward P/E, an 18% discount to its 10-year average. UBS has slightly increased Kerry's price target to €107, primarily due to foreign exchange benefits, but does not foresee a near-term rerating without a distinct catalyst. Within the sector, DSM-Firmenich remains UBS's top pick, with Novonesis now its second preferred stock.

Key Decisions for Investors

• Investors may consider Novonesis for its strong growth outlook, superior margin profile, and potential for valuation rerating, particularly ahead of its H1 2025 results which are anticipated to be a positive catalyst.
• For Kerry Group, a more cautious stance is warranted due to its limited short-term earnings upside and U.S. market sensitivity, despite a discounted valuation and solid long-term EPS growth projections.
• Portfolio managers focused on the consumer chemicals and ingredients sector should note UBS's revised preferences, potentially re-evaluating positions in Novonesis relative to Kerry Group and acknowledging DSM-Firmenich as the top pick.