Recovery Will Likely Emerge After Industry Pressures Ease In 2026

Key Takeaways

• Strategic acquisitions and a strong M&A pipeline suggest future revenue growth and expanded net margins from realized synergies.
  
• Investments in digitalization and sustainability could drive operational efficiencies, improving net margins and earnings stability long-term.
  
• Geopolitical uncertainty, cost inflation, and regional inconsistencies could hinder Azelis Group's revenue growth and profitability, while working capital issues strain cash flow management.

Catalysts

Engages in the distribution of specialty chemicals and food ingredients.

• Azelis Group's organic growth turned positive in Q3 and Q4 of 2024, suggesting improving business conditions and momentum that could lift future revenue and earnings if the trend continues.
  
• The company completed 8 acquisitions during 2024 with a strong focus on its strategic markets and indicated a promising M&A pipeline, which should contribute to future revenue growth and potentially expand net margins as synergies are realized.
  
• Azelis is seeing a robust recovery in its Life Sciences segment, particularly in the U.S., which is one of its higher-margin areas, indicating potential for improved gross profit margins and earnings.
  
• The company is investing in digitalization and sustainability initiatives, which could drive operational efficiencies and improve net margins over the long term.
  
• Azelis' commitment to optimizing its product portfolio, especially in regions like Asia Pacific and Latin America, aligns with strategic focus, suggesting improved gross margins and earnings stability as higher-margin products are prioritized.

Azelis Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Azelis Group's revenue will grow by 5.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.0% today to 4.8% in 3 years time.
• Analysts expect earnings to reach €238.0 million (and earnings per share of €0.96) by about September 2028, up from €169.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €269.4 million in earnings, and the most bearish expecting €204.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.9x on those 2028 earnings, up from 17.7x today. This future PE is greater than the current PE for the BE Trade Distributors industry at 17.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.01%, as per the Simply Wall St company report.

Azelis Group Future Earnings Per Share Growth

Risks

• The company is experiencing significant geopolitical uncertainty and market volatility, which may affect its ability to maintain stable revenue streams and profit margins.
  
• Lingering cost inflation, including salary and logistics expenses, and higher distribution costs could potentially squeeze net margins, impacting overall profitability.
  
• Although the company has shown positive organic growth, it continues to face inconsistent recovery across different regions, with certain areas like China and Australia remaining weak, which could hinder overall revenue growth.
  
• The company's net profit remains flat, and leverage has increased to 2.9x, suggesting potential financial strain that could affect its ability to finance further growth or increase earnings.
  
• Working capital challenges, particularly with higher inventory and receivables, are leading to lower free cash flow conversion, which may impact the company's ability to efficiently manage cash and meet financial obligations.

Valuation

• The analysts have a consensus price target of €19.557 for Azelis Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €24.0, and the most bearish reporting a price target of just €16.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €4.9 billion, earnings will come to €238.0 million, and it would be trading on a PE ratio of 25.9x, assuming you use a discount rate of 9.0%.
• Given the current share price of €12.34, the analyst price target of €19.56 is 36.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.