MS starts Novonesis at Overweight, says stock to rerate towards its prior highs

Morgan Stanley initiated coverage of Novonesis (NSISb) with an Overweight rating and a DKK577 price target, implying a 24% upside, based on expectations of structural demand tailwinds and margin expansion. The firm projects a 7.4% top-line and 18.2% EPS CAGR between 2024 and 2027, driven by improved commercial execution, synergy realization from the Novozymes and Chr. Hansen merger, and strength in core markets. Morgan Stanley also anticipates a higher EV/EBIT multiple for Novonesis, potentially reaching a 70% premium, and sees the possible reinstatement of share buybacks as a further catalyst.

Analysis

Morgan Stanley has initiated coverage on Novonesis with an Overweight rating and a DKK577 price target, projecting a 24% upside. This outlook is predicated on the expectation that Novonesis, a biotech-based growth compounder formed from the 2024 merger of Novozymes and Chr. Hansen, will experience a stock re-rating towards its historical premium. Analysts forecast a robust 7.4% top-line compound annual growth rate (CAGR) and an 18.2% EPS CAGR for the period 2024-2027, with EBITDA estimates for 2025 and 2026 running 8% and 3% above consensus, respectively. Key drivers for this performance include improved commercial execution post-merger, the realization of synergies, and structural demand tailwinds in core end-markets such as dairy, bioenergy, and human health. Novonesis's significant R&D investment, reportedly 500 basis points above peers, is anticipated to sustain a strong innovation pipeline and competitive growth advantage. Morgan Stanley expects Novonesis's EV/EBIT multiple to expand, potentially reaching a c.70% premium to peers, up from the current c.40%, and references a historical average premium of 98% during the 2008-2013 growth boom. The potential reinstatement of share buybacks, with €100 million announced for 2025, is viewed as an additional catalyst, drawing parallels to Novozymes' historical program which retired 16% of its market cap between 2011 and 2022. While acknowledging risks related to pricing power and the durability of margin expansion, Morgan Stanley believes these are mitigated by Novonesis's structural growth exposure and manufacturing efficiencies, projecting the company to achieve a net cash position by 2028.

Key Decisions for Investors

• Investors should consider Morgan Stanley's Overweight rating and DKK577 price target, which suggests a significant potential upside driven by anticipated growth and margin expansion for Novonesis.
• Monitor the merged entity's ability to deliver on commercial execution, realize synergies effectively, and capitalize on tailwinds in its core markets, as these are crucial to achieving the forecasted 7.4% top-line and 18.2% EPS CAGR.
• Evaluate the potential for a valuation re-rating as the company's EV/EBIT multiple could expand towards historical premiums, and factor in the reinstatement of share buybacks and the projection of a net cash position by 2028 as potential value drivers.