Investing.com -- UBS Global Research has upgraded Azelis Group (EBR:AZE) to a "buy" rating from its previous "neutral" stance.
Shares of the Belgium-based company were up 3.8% at 08:12 ET (13:12 GMT).
UBS believes profit pressures have peaked, making the company's current valuation attractive.
Azelis saw profit normalization in 2024, following a period of exceptional growth from 2020 to 2022
While the chemical distribution sector faced challenges in the past year, UBS projects 2025 to be a more typical year, characterized by modest volume recovery and easing pricing pressures.
The analysts foresee conversion margins stabilizing at about 45%, which remains higher than pre-2020 levels and above the low 40% range implied by current market valuations.
UBS has adjusted its price target for Azelis upward, from €19 to €22, reflecting a 1% increase in expected earnings per share and the inclusion of potential bolt-on mergers and acquisitions into its discounted cash flow valuation model.
The brokerage notes that Azelis has historically been active in mergers and acquisitions, a key growth strategy in the fragmented chemical distribution market.
With a conservative assumption of €150 million in annual mergers and acquisitions spending, the valuation captures the company's ongoing potential to expand its market share.
Despite cautious commentary from Azelis management regarding customer ordering patterns, UBS forecasts a 4.5% year-over-year volume growth for 2025.
Pricing pressures may persist into the first half of the year, but the overall risk of a margin reset appears limited.
The analysts also flag the resilience of the chemical distribution industry, which benefits from structural growth and defensive demand patterns.
Trading at around 12 times its estimated 2025 EV/EBITA, Azelis represents a 25% discount compared to peer IMCD (AS:IMCD), despite comparable growth outlooks.
UBS flags an attractive entry point for investors due to Azelis's valuation gap. Analysts said that the company's long-term growth potential as a top-three player in a diverse and expanding market.