BNP Paribas Lifts Novonesis to Neutral After Steep Sector Lag

BNP Paribas shook things up Friday by bumping its rating on Novonesis from "underperform" to "neutral." The move comes after Novonesis lagged the broader specialty ingredients sector by about 20% this year, despite putting up solid operational numbers.

The brokerage highlighted that while Novonesis's valuation has dropped, it's still trading at a 24 times forward earnings multiple for 2027, marking a 20% premium to its peers - down substantially from a 40% premium at the end of last year.

There's still a cloud hanging over the long-term organic growth story for Novonesis. BNP Paribas voices caution there, but notes that the company's 2026 earnings forecasts line up with consensus expectations and hints at a potential positive guidance revision following second-quarter results.

Shares of Novonesis ended July 2 at 425.8 Danish kroner, while BNP Paribas's own target price sits slightly below that at 415 kroner, implying a mild downside risk in their view.

BNP's analysts also pointed out an improving tone in the ingredients sector overall, helped by better volume expectations, softer oil prices, and more balanced market positions. Yet, the bar to impress in Q2 is higher, especially around volume sustainability and input cost management heading into the second half of the year.

Interestingly, sector valuations remain relatively subdued at about 19 times forward earnings, representing a 10% discount to historical averages and hovering 40% shy of peak levels seen previously.

Among other names, BNP Paribas picked Kerry, Sensient, and Symrise as its top ideas, all carrying "outperform" labels. The call on Kerry appears contrarian given recent softness, but BNP bets on reassurance from upcoming volume figures and potential margin upgrades.

Sensient is noted for ongoing momentum, despite unpredictable timing on its color conversion efforts, with room for a possible full-year forecast lift. Meanwhile, Symrise is expected to build on steady sequential organic gains that should bolster confidence in hitting its 2026 targets.

On the cost front, moderating oil prices are a welcome relief, but BNP Paribas still anticipates higher input costs in H2 2026. Fortunately, these should be manageable due to pricing power and a more moderate inflation backdrop compared to 2022. Natural raw material price pressures have been tame so far this year.

Looking ahead to 2027, risks like rising fertilizer expenses and potential El Niño weather impacts are flagged as issues to watch. However, proactive procurement and pricing strategies might blunt these headwinds.