Ems-Chemie Downgraded to Neutral by UBS on Valuation After 55% Rally

Shares of Ems-Chemie fell after UBS downgraded the Swiss specialty chemicals company to Neutral from Buy, citing a rich valuation following a significant stock rally. The bank's analysts noted that the positive catalysts they previously identified are now fully reflected in the company's share price.

Valuation Seen as Stretched

UBS downgraded the stock after a roughly 55% rally this year, stating that the earnings recovery and expansion into new growth areas, such as humanoid robots, are now priced in. The bank raised its price target slightly to 870 Swiss francs from 860 francs.

In response to the ratings change, Ems-Chemie shares declined 1.8% in Swiss trading. According to the UBS note, the stock's multiples, trading at approximately 26 times estimated 2027 EV/EBITDA, no longer offer potential for re-rating and could be a point of vulnerability. The risk and reward are now seen as "balanced."

Growth and Margin Outlook

While UBS's earnings per share growth forecast of 6% to 7% annually is ahead of consensus, it remains below the roughly 10% average the company saw before 2020. Analysts also see limited potential for further margin expansion from what they describe as current record levels, with EBIT margins now above 30% compared to 25% in fiscal 2015.

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UBS analyst Patrick Rafaisz wrote that Ems-Chemie's premium valuation relative to its peers is justified by its high return on invested capital of about 40%. However, the sharp increase in the stock price has absorbed this upside potential.

Near-Term Forecasts Remain Strong

Despite the valuation concerns, UBS anticipates a strong fourth quarter for the company, modeling organic growth above 7%. This is expected to be driven by renewed price increases of about 4% to pass on rising input costs. The bank's forecast suggests Ems-Chemie is on track to meet its guidance.

For the full year 2026, UBS projects sales of 2.014 billion francs and EBIT of 609 million francs, both above consensus estimates. The bank's 2027 sales forecast of 2.17 billion francs also exceeds the market consensus of 2.062 billion, based on assumptions of 6.6% organic growth and a 1% rise in global auto build rates, a key end market for the company.