Jefferies has moved specialty chemical distributors IMCD and Azelis to Hold, saying recent gains in both stocks have already captured much of the expected recovery as the sector transitions toward more moderate, volume-led expansion and gradually improving margins.
Analyst David Kerstens revised his price targets as part of the change. For Azelis he cut the target to 13 from 15, reflecting a raised cost of capital of 10% from 9% on stricter return criteria. For IMCD he lowered the objective to 115 from 122, citing reduced earnings estimates.
Kerstens said the industry should benefit from "gradually normalising industry conditions," but warned that the inflation tailwind that supported elevated pricing is fading and that the market is now "waiting for volumes." Following the note, IMCD and Azelis shares fell 1.4% and 1.7%, respectively.
Recent company results and cashflow dynamics
Azelis reported third-quarter EBITA up 15% to 114 million, supported by 8.2% organic revenue growth and cost discipline. Gross margin was reported as stable at 23.4%. However, free cash flow declined 52% to 67 million, attributed to higher working capital, and leverage remained elevated at 3.5 times EBITDA versus a stated target below 3 times.
The quarter also included a 350 million non-cash goodwill impairment tied to earlier Americas acquisitions, a charge that overshadowed the operational recovery.
IMCD posted an 18% rise in EBITA to 140.2 million, with organic revenue growth of 5.5% that slowed from 7.5% in the second quarter as pricing stabilised. Regional performance showed slower growth in Europe, the Middle East and Africa at 5.6% versus 10.3% previously, while the Americas grew 1.5% and Asia-Pacific increased 9.9%. IMCD's gross margin expanded by 80 basis points to 25.1% and leverage improved to 2.6 times from 2.8 times in December.
Outlook and strategic targets
Both companies now guide to positive organic EBITA growth in 2026, despite uneven demand. Jefferies projects an EBITA recovery of 6% for Azelis and 9% for IMCD.
Azelis has set a target of high-single-digit EBITA growth, to be split roughly half from organic development and half from acquisitions that meet a return on invested capital above 11.5%. Management does not expect to complete any acquisitions this year, stating that leverage levels and acquisition asking prices are too high.
Valuation and market performance
Azelis shares have risen 25% year-to-date, outpacing a 12% gain for the EuroStoxx, and trade at 10.1 times 2026 estimated EV/EBITA. That multiple represents a 29% discount to the company's historical valuation and sits 27% below IMCD's multiple.
IMCD has gained 32% year-to-date and is trading at 13.7 times estimated 2026 EV/EBITA, a 16% discount to its historical average but a 36% premium to Azelis.
Implications for investors
Jefferies move to Hold on both distributors reflects the view that much of the anticipated improvement in margins and volumes is already priced in after strong share performance this year. Investors tracking these names will be watching volume trends and working-capital dynamics closely, given their impact on free cash flow and leverage.