UBS upgrades PolyPeptide Group stock to Buy on growth prospects

UBS upgraded PolyPeptide Group AG (SIX:PPGN) to Buy, raising its price target to CHF32.00, based on expectations for significant second-half improvement driven by a new reactor that will increase production capacity and enable upgraded full-year 2025 sales guidance. Despite recent profitability shortfalls, UBS increased its fiscal year 2025-2027 estimates for sales, EBITDA, and EPS, asserting that the stock's current discount to peers undervalues its strong medium-term growth potential.

Analysis

UBS has upgraded PolyPeptide Group AG (PPGN) to a Buy rating from Neutral, raising its price target from CHF19.00 to CHF32.00. This upgrade is forward-looking, issued despite first-half results that missed profitability expectations. The bullish thesis is predicated on management's guidance for a significant second-half improvement, driven by a new reactor in Braine that is set to increase production capacity. This operational enhancement underpins an upgraded full-year 2025 sales forecast and has prompted UBS to increase its fiscal year 2025-2027 estimates, with projected sales, EBITDA, and EPS rising by an average of 3%, 6%, and 19%, respectively. The medium-term outlook is particularly strong, supported by secured long-term contracts that provide high sales visibility and de-risk future revenue streams. UBS projects a 17% revenue CAGR and a substantial 61% EBITDA CAGR over the medium term, believing the Braine reactor is on track to meet utilization targets by the end of 2025. From a valuation perspective, UBS notes that PPGN trades at 14 times estimated fiscal year 2026 EV/EBITDA, a discount to the peer average of 16 times, which it argues more than compensates for current profitability issues and undervalues the company's growth potential.

Key Decisions for Investors

• Investors should consider the thesis that PolyPeptide is at an inflection point, where near-term profitability concerns are outweighed by the potential for significant medium-term growth driven by tangible capacity expansion and secured contracts.
• The valuation discount to peers at 14x FY26E EV/EBITDA presents a potential entry point for those confident in the execution of the Braine reactor ramp-up and the firm's ability to achieve the projected 61% EBITDA CAGR.
• It is critical to monitor the company's execution risk; upcoming earnings reports should be scrutinized for evidence of the Braine reactor reaching target utilization and delivering the anticipated margin improvements to validate the forward-looking upgrade.