Jefferies flags 2H risks for EU chemical stocks, prefers consumer names

Investing.com -- European chemical companies face mounting pressure to meet full-year earnings targets, with Jefferies warning that most stocks require an above-average second-half performance to hit guidance. 

The brokerage’s 2025 estimates are on average 2% below consensus, 4% lower in diversified chemicals and 1% in consumer names.

Margins have come under pressure. Product spreads for upstream producers have shifted from a roughly +5% benefit in early 2025 to a -5% drag by midyear. 

Chemical imports from China into Europe are up about 3% year-to-date, while regional demand remains subdued. 

Jefferies projects flat volumes for the diversified group and notes that the required second-half contribution is historically high. 

The brokerage sees an average required organic growth of 3.6% for full-year 2025, while first-half tracking is falling short.

Jefferies downgraded Symrise and Brenntag to underperform and cut Clariant (SIX:CLN) and Arkema (EPA:AKE) to hold. 

It upgraded Syensqo and Umicore (EBR:UMI) to “buy,” citing their pricing power amid deflationary pressure. Umicore’s price target was raised to €16, reflecting 33% upside.

Air Liquide (OTC:AIQUY) remains a “buy” despite volume headwinds, with Jefferies citing strong net pricing driving margin improvement. 

Among fertilizers, near-term earnings gains from supply disruptions have lifted sentiment, but Jefferies sees no structural support and retains “underperform” ratings on Yara and K+S.

In consumer chemicals, Jefferies favors Novonesis, DSM-Firmenich and Kerry. Novonesis leads in expected FY25 growth, despite inventory build concerns. 

DSM-Firmenich trades at a 25% discount to peers after its animal nutrition exit. Kerry is seen benefiting from reformulation demand and strong cash flow.

Strategically, Jefferies notes a shift from asset sales to balance sheet optimization. Lanxess (ETR:LXSG) and BASF are focusing on deleveraging, while DSM-Firmenich and AkzoNobel are pursuing buybacks. 

Though leverage remains manageable, uncertainty around trade, tariffs and regulation clouds visibility, especially as Chinese exports continue to rise and European producers lose competitiveness.

On valuation, Jefferies sees about 10% multiple upside in food and health-exposed names due to U.S. regulatory momentum under the “MAHA” agenda. 

Sector-wide, defensive chemicals still trade at a discount to historical averages, with up to 12% further upside seen versus staples.

Within fertilizers, Jefferies warns Yara needs 28% organic growth to meet FY25 forecasts. 

Among diversified names, companies like Arkema and Solvay (EBR:SOLB) require heavy second-half lifts, underscoring broad downside risk. 

FX headwinds also remain, with several firms, including BASF, Brenntag, and Syensqo, sensitive to EUR/USD movements, assuming a rate of 1.05 in guidance.