【摩根士丹利】欧洲化工：上游反转风险中增长与现金为王

MorganstanleyRESEARCHFouNDAtioN

July20,202603:31AMGMT

Chemicals|Europe

Growth+Cash=KingAmidUpstreamReversalRisk

Withupstreammomentumshowingsignsofreversal,wearguequalitygrowthandcashgenerationwillbecomeincreasingly

importantdriversofrelativeperformance.

KeyTakeaways

SeveralDiversifiedChemsface2Hspreadreversalriskorindustry/demand

challenges.WebuythenameswiththebestFCF/cashreturnprospects(BASF/EVK)...

...whereasweavoidthosewithpoorFCFyields(andwhereFCF<Dividend),beingSOLB,orwhereweseenear-termearningsrisk(CLN).

UpgradeAirLiquidetoOWonunderappreciatedElectronicspotential,supportedbyrecordprojectswinsandanElectronicsbacklog~7xthesizeofclosestpeers.

MaintainourNovonesisOW,asitscreensattractivelyagainstourquality-compounderpeerset.

Otherratingchanges:ArkematoEW(fromOW)andClarianttoUW(fromEW).

EuropeanChemicalsbenefittedfromanupstreamcycleupswingin1H26

(particularlyMarch-June)onatemporaryfavourablechangeintheircostcurve

positionandtheabilitytoregainsomeEUshare,givenloweraccessforAsian

suppliers(whichalsofacedcurtailments/shutdownsonfeedstockbottlenecks).Theupswingprovedshort-lived,withourJunespreadtrackersindicatingareversal,as

moreproductreachedexportmarketsthaninitiallyfeared.However,themagnitudeoftheunwindremainsuncertaininto2H26+,particularlyfollowingrenewedUS-Iranconflict.Amidthislevelofuncertainty,acrossDiversifiedChemicals,wepreferto

ownnamesthatofferstandoutFCFyields(Evonik,OW)and/orattractivedividendyieldswithoptionalityforspecialreturns(BASF,OW),whereasweavoidFCF

laggards(Solvay,UW)andnameswithnear-termearningsrisk(Clariant,UW).Morebroadly,wefavournamesthatoffer(i)durablegrowth(Novonesis,OW)and(ii)

namesgearedintosecularsemi/AItrendswithstrongearningsvisibility(AirLiquide,OW).

•NovonesistoEUChemsTopPick.WhileEvonikpresentsthemostattractivenear-termestimateandvaluationasymmetry(offeringa10%FY26–28FCFyield),weseeNovonesisasthesector'shighest-qualitylong-durationgrowthasset,underpinnedbysuperiorandmoresustainablegrowth.

•AirLiquide-Webelievethemarketisoverlyfocusedonnear-termquarterlyearnings(2Q26,whichmaylackmomentum)andunderestimatesAir

Liquide'sElectronicsbacklog(weforecast9%FY26-28comparablegrowthCAGRvsCons7%).ThecompanyhaswonarecordamountofElectronicsprojectsover2025-26YTD(in€-terms)andhas2x/11xtheElectronics

MoRGANSTANLEy&Co.INTERNATioNALpLc+LisaHDeNeve

EquityAnalyst

Lisa.De.Neve@

+44207677-0250

SelinaWang

ResearchAssociate

Selina.Wang1@

+44207425-2552

CHEmicALs

Europe

IndustryView

In-Line

WHAT’sCHANGED

AirLiquide(AIRP.PA)

FromTo

Rating

Equal-weightOverweight

PriceTarget

€152.73€206.00

Novonesis(NSISb.CO)

FromTo

PriceTarget

DKr552.00DKr520.00

TopPick

BASFn.DENSISb.CO

Solvay(SOLB.BR)

FromTo

PriceTarget

€21.00€23.00

EvonikIndustriesAG

(EVKn.DE)

FromTo

PriceTarget

€19.00€21.00

SyensqoSA(SYENS.BR)

FromTo

PriceTarget

€50.00€73.00

ArkemaS.A.(AKE.PA)

FromTo

Rating

OverweightEqual-weight

PriceTarget

€83.00€63.00

BASF(BASFn.DE)

FromTo

PriceTarget

€60.00€56.00

TopPick

BASFn.DENSISb.CO

ElkemASA(ELK.OL)

FromTo

PriceTarget

NKr26.00NKr30.00

ClariantAG(CLN.S)

FromTo

Rating

Equal-weightUnderweight

PriceTarget

SFr8.10SFr7.00

MorganStanleydoesandseekstodobusinesswith

companiescoveredinMorganStanleyResearch.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofMorganStanley

Research.InvestorsshouldconsiderMorganStanley

Researchasonlyasinglefactorinmakingtheirinvestmentdecision.

Foranalystcertificationandotherimportantdisclosures,refertotheDisclosureSection,locatedattheendofthisreport.

+=Analystsemployedbynon-U.S.affiliatesarenotregisteredwithFINRA,maynotbeassociatedpersonsofthememberandmaynotbesubjecttoFINRArestrictionson

communicationswithasubjectcompany,publicappearancesandtradingsecuritiesheldbyaresearchanalystaccount.

MorganstanleyRESEARCHFouNDAtioN

2

backlogofLindeandNippon,respectively.WeseeAirLiquideasthebest

waytoplaytheElectronics/SemiscycleacrossEUChemicals,supportedbystrongvisibilityonprojects/startups(giventhetake-or-paynature);overallitoffersa4%/11%FY26-28LFL/AdjEPSCAGR(vsGasespeersat4%/9%overthesameperiod).WeupgradetoOverweight(fromEqual-weight)witha

PriceTargetof€206,offering+16%upsidetotheshareprice.

•Novonesis-WeconsiderNovonesistobeaquality-growthcompounderwithaportfoliobackedbyhighentrybarriersandaninvestmentstorywith

longevity.Wethereforebelieveitistoorestrictivetobenchmarkthe

businesssolelyagainstIngredientspeers(whichcomewithaslowergrowthprofileandfacepocketsofChinesecompetition).Hence,wehaveassessedNSISBagainstagroupofplayerswithcomparablebusiness/financial

characteristicsacrossvarioussectors(includingAtlasCopco,Belimo,

Hermes,FerrariandSafran);thissuggestsNSISBshouldcommanda31x2026PER2026,whichoffersanalternativevaluationapproach.Our

valuationisderivedfromacombinationofDCFandIngredientsPeer

valuationmodels,implyingDKK520fairvalue(+23%upsidetothecurrentshareprice);wemaintainourOverweight.

•DiversifiedIndustrialChemicals-WhileourJunespotspreadtrackerspointtothestartofacyclicalearningsunwindfrom2H26onwards,uncertainty

remainselevatedfollowingtherenewedUS-Iranconflict.Investorsalso

continuetodebatetheoutlookfornetpricinganddemandacrosskeyendmarkets,particularlyconstruction,autos,andconsumerelectronics,whichremainsoft.Againstthisbackdrop,weprefernameswithstrongFCFand

attractivedividendyields:(i)Evonik,OW,offers~9%FY26-28FCFyield;and

(ii)BASF,OW,offersa5%FY26-28dividendyieldandadditionalscopeforbuyback.Akeynear-termriskforBASFisRhineRiverwaterlevels,given

around37%ofLudwigshafenvolumeswereshippedviathisroutein2025;however,lowwaterlevelshavenotyetaffectedvolumes,production,orrawmaterialsupplies(seeherefordetails).Weavoidnamesthatcarryearningsrisk(Clariant,UW)orpoorFCFyield,lackofdividendcoverage(FY26-28

Dividend>FCF)andwhereFY26FCFguidancescreensastoolofty(Solvay,UW).

Exhibit1:MSChemicalssummaryofchangesinrating,pricetarget

Sharepricedate:16July2026.Source:CompanyData,MorganStanleyResearchEstimates

TransferofCoverage:WetransfercoverageofAirLiquide,Arkema,BASF,Elkem,Evonik,NovonesisSolvay&SyensqotoLisaDeNeveinthisnote.WedropcoverageofLanxess,Synthomer,Victrex&Wackerfollowingachangeinresources.

MoRGANSTANLEyREsEARcH3

Previewtoearnings

FocusKPI

FocusKPISurprise

LikelyimpacttoconsensusEPS*

AirLiquideAIRP.PA

ComparableGrowthLikelydownsidesurpriseLargelyunchanged

•KeyvariablesarecommentsonElectronics/LIgrowthinto2H26+MerchantPricing+BacklogStrength

NovonesisNSISb.CO

LFLGrowth/AdjEBITDALikelyupsidesurprise

•FY26LFLrangeupgradelikely,albeitexpected.

Largelyunchanged

ArkemaS.A.AKE.PA

AdjEBITDAIn-line

•Focuswillbedemandtrendsinto2H+FCFgeneration

Modestrevisionlower

SyensqoSASYENS.BR

AdjEBITDAIn-lineLargelyunchanged

•Focusisonnetpricingandscopeforvolumeimprovement,nexttocleanerFCF

•Updateonportfoliooptimization

ClariantAG

EBITDA

CLN.S

LikelydownsidesurpriseModestrevisionlower

•FY26AdjEBITDAmarginmaybereviseddownwards

SolvaySOLB.BR

EBITDAIn-lineModestrevisionlower

•FY26guidelikelyupdatedtolow-endoftherange

*LikelyimpacttoconsensusEPSisforthenext12monthsSource:Companydata,MorganStanleyResearch

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KeyCharts

Exhibit2:MSChemicalssummaryofchangesinrating,pricetarget

Sharepricedate:16July2026.Source:CompanyData,MorganStanleyResearchEstimates

Exhibit3:MSChemicalsBase-Bull-BearCasechanges

Source:CompanyData,MorganStanleyResearchEstimates

MoRGANSTANLEyREsEARcH5

Exhibit4:Coverageupside/downsidesummary

Source:CompanyData,MorganStanleyResearchEstimates

Exhibit5:MSvsCons-2026AdjEBITDA(%)

Source:CompanyData,MorganStanleyResearchEstimates

Exhibit6:MSvsCons-2026AdjEPS(%)

Source:CompanyData,MorganStanleyResearchEstimates

6

Exhibit7:AirLiquideElectronicsProjectWins(announced)havesteadilyincreasedoverthelast~3.5years(€m)

Exhibit8:BASFstilloffersastrong5%dividendyield,backedbyahigherFCFyield(asFCFcoverstheDivifromFY26/+)

Source:CompanyData,MorganStanleyResearch

Exhibit9:EvonikoffersthemostcompellingFCFyield

amongstDiversifiedChems,whileSolvayscreenstheweakest...(%)

Source:CompanyData,Workspace,MorganStanleyResearch

Source:CompanyData,MorganStanleyResearch

Exhibit10:...withSolvayunlikelytocoveritsdividend(viaFCF)throughFY28e,weestimate

Source:CompanyData,MorganStanleyResearchestimates(e)

MorganstanleyRESEARCHFouNDAtioN

MoRGANSTANLEyREsEARcH7

AirLiquide(OW):ElectronicsAccelerationUnderestimated

RisingElectronicsbacklog...AirLiquidedeliveredarecordbacklogof€5.5bn,comprisingover75projectsat1Q26-end.Mostnotably,over40%,or~€2.49bn(upfrom~33%in

2024),ofthisbacklogisnowcomposedofElectronicsprojects,gearedtoAsia,despitethesegmentmakingup~9%ofGroupSales(2025).Theeuro-valueofannouncedElectronicsprojectsnowalmosttouches€1.7bn,weestimate,ofwhich~€700m/+announcedYTD,

withapickupinwinsposttheSouthKoreanDIGAirgasacquisition(includingtwolong-termUSandSouthKoreacontractswithSKHynixtotalling>€350mforprojects

dedicatedtoadvancedpackagingofhigh-bandwidthmemory).SeeExhibit11toExhibit

14.ThisindicatestousthatAirLiquidemayalreadybeleveragingtheKoreanDIGAirgascustomerrelationshipsglobally,signallingaccount-levelmomentumandscopefor

synergydelivery.

AirLiquideElectronicsinaNutshell

AirLiquideprovidesbothproductandservices,with90%goingtothesemis

sector;morespecifically,itsupplies(i)ultra-high-puritycarriergases,especially

nitrogen,oxygenandhydrogen,inadditiontocomplexmolecules;(ii)advanced

materials/specialisedfluidsystems/precursormoleculesforetching,depositionandcleaning;and(iii)installation,equipment,handlingandanalyticalservicesforsafe,reliabledeliverytofabs.AirLiquidehasbuiltitsElectronicssegmentlargely

organically,aswellasviaM&A,includingVoltaix,whichaddedsemi/solarexpertiseandcomplementedthecompany'sALOHAadvancedprecursorproductline(2013).Morerecently,thiswasfollowedbytheDIGAirgasacquisitioninSouthKorea

(whichclosedinJanuary2026).Thedivisionhasgrownata6%comparablegrowthand8%EBITCAGRoverthelast5years(againstastrong2022semisbackdrop

butmemorycycleunwindin2023,inadditiontoaslowersupplymemorycyclein2025andparticularlytoughcompsforAirLiquideinEquipment&Installation

salesin4Q25).

MorganstanleyRESEARCHFouNDAtioN

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Exhibit11:AirLiquidebacklogmix(1Qadjustedfor2Qnetprojectannouncements)

Source:CompanyData,MorganStanleyResearch

Exhibit13:Electronicsnowmakesup40%/+ofthebacklog

Exhibit12:AirLiquide'sannouncedElectronicsprojectwinsinEUR-termshavesteadilyincreasedoverthelast~3.5years(€m,2020-YTD)

Source:CompanyData,MorganStanleyResearch

Exhibit14:AirLiquideElectronicssalesmix(%,2025)

Source:CompanyData,MorganStanleyResearch

Source:CompanyData,MorganStanleyResearch

...backedbystrongSemisdemand/investment.Over90%ofthecompany'sElectronicssalesaregeneratedfromthesemissector,especiallyinWaferFabEquipment(WFE),

whichisrequiredtomanufacturemicrochips.Semisinvestmentisexpandingstronglyatan18%CAGRthroughFY28(vsFY25).WFEcapex(asanindicationforAirLiquide's

underlyingprojectdemand)remainsatelevatedlevelstosupportmorechips/wafer

capacityandhigherchipcomplexity,especiallyinHigh-Bandwidth-Memory(e.g.itrequiresmoreadvancedpackaging),inadditiontobroadeningregionalproductionpresence.TheWFEcapexnumbersrepresentaggregateinvestmentestimatesforthekeyWFEplayers:

ASML,AppliedMaterials,KLACorporation,LAMResearchandTokyoElectron.Air

Liquide'shistoricalElectronicssalesdisplayastrongcorrelationtoWFEsalesandCapexschedules–seeExhibit15toExhibit19.

MoRGANSTANLEyREsEARcH9

Exhibit15:AirLiquide'sElectronicssalesdisplaystrongcorrelationtoWFE(system)playersales*

Source:CompanyData,MorganStanleyResearch,*WFAplayers=KLACorp,AdvMaterials,TokyoElectron,ASML,LAMResearch(systemssalesonlywhereavailable)

Exhibit17:WFECapexhasmeaningfullysteppedup,especiallyfrom2023/+

Source:CompanyData,MorganStanleyResearchCapexEstimates(E)

Exhibit16:AirLiquide'sElectronicssalesarealsomateriallycorrelatedtoWFEplayerCapexcycles*

Source:CompanyData,MorganStanleyResearch,*WFAplayers=KLACorp,AdvMaterials,TokyoElectron,ASML,LAMResearch

Exhibit18:Similarly,AirLiquide'sElectronicssalesarehighlycorrelatedtoglobalSemiscapexoverthelast10years(2015-25)

Source:CompanyData,MorganStanleyResearch

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Exhibit19:

WFECapexsettogrowat41%in2026and17%in2027

Source:Gartner,SEMI,Companydata,MorganStanleyResearchHardwareTeam.e=MorganStanleyResearchestimates

AirLiquidehasthelargestElectronicsbacklogacrosskeygasespeers.Acrossthe

Electronicsspace,AirLiquidehasanumberofcompetitors.ItscorepeersareLinde

(coveredbyVincentAndrews)andNipponSanso(coveredbyRyoichiWatanabe).Air

Liquidecancompetewiththeseplayersforthesameon-sitegasinfrastructurecontracts,aswellassometimesalsocompetingwithinternalteamsforon-sitecontractsspecifically(includingatSamsung).NipponSansohasalargershareofgroupsalesexposedto

Electronics(17%vsLinde/AI9%),andLindeenjoysamoderatelylargerfootprint(insalestermsandespeciallyincludingthenon-consolidatedTaiwanjointventure)versusAir

Liquide,althoughthisgapisnownarrowingwiththeDIGAirgasacquisition.Offering-wise,

MoRGANSTANLEyREsEARcH11

Lindehasastrongpositioningasandinfralayers(includingon-sitenitrogen/oxygenplantconstruction),whileAirLiquidehasarobustandverticallyintegratedofferingacross

advancedmaterialsandfab-equipmentlayers.Mostnotably,whereAirLiquidestandsoutisitsmateriallylargerelectronicsbacklog,trendingat~2xthelevelofLindeand~11xthelevelofsmallermarketplayerNipponSanso.

Exhibit20:AirLiquideandkeyElectronicspeerstotal

electronicsvalue(€m)andshareofprojectslinkedtoElectronics(rhs,%)

Source:CompanyData,MorganStanleyResearch,*AirLiquideandLindeinvestmentbacklogonlyincludeElectronicsprojectswithavalueover€10mand$5mrespectively.

Exhibit21:AirLiquidevspeersshareofsalesderivedfromElectronics(%)

Source:CompanyData,MorganStanleyResearch

ExposuretoAI/SemisCyclewithoutmaterialcyclicality.WithAirLiquidehavingwonarecordofElectronicsprojectsin€-valueacross2025-2026YTD,webelievethiswill

strengthenitsgrowthcontributionoverthe2027-29period.Combinedwiththerobustsemisinvestmentcyclebackdropoverthenext~3years,especiallyinmemory(backedbygrowingdemandforchips,andespeciallymorecomplexity/moreequipmentperunitof

capacity)anditsrecentDIGAirgasacquisition,webelievethecompanyhasanattractiveset-upthathasyettobeproperlycapturedinconsensus(alongsidescopeforincrementalproject/businesswins).WebelieveAirLiquide'sElectronicsbusinesswillbeabletogrowata9%comparablesalesgrowthCAGR(VAConsat7%)overthenext3years,withits

backlogprimarilycomingonlineover2027-late2028,andweforecasta~125bpsaveragefastergrowthratethanconsensus.Further,unlikevarioussemiconductorplayersthat

havealonghistoryofcyclicalityandvolatility,AirLiquide'sbacklogismadeupoflong-

termtake-or-paycontracts,implyinglong-termvisibilityofearnings,withtheramp-up

pathclear(althoughwithsomedelayspossible);wearguethat,whilethefabcycleisverylumpytheprojectline-upoffersvisibilityforthenext2.5-3years.

12

Exhibit22:AirLiquideElectronicsSegmentSplit(%)

Source:CompanyData,MorganStanleyResearch

Exhibit23:AirLiquideElectronics–MSvsCons(€m)

Source:VisibleAlphaCons,MorganStanleyResearch

Valuation:MovetoOverweight,pricetargetto€206.Weseearelativelyattractiveset-

upforAirLiquide,given:(i)StronggrowthprospectsinElectronics;(ii)an11%EPSCAGR(vskeyGasespeersat~9%)overthenext3years,supportedbya4%growthCAGR(exFX/Scope)andmarginexpansionfromefficiencies;and(iii)anuncertainbackdropforthemajorityoftherestofEuropeanlndustrialChemicals.Withregardtothelatter,Air

LiquidehasindirectexposureviaitsLargelndustriesbusiness,wheresomecustomerplantclosureriskstillexistsmid-term,yetthisbusinessoffersbase-linestability,giventhetake-or-paycontractsinplace;wedonotseepotentialriskforpermanentchemicalplant

closuresuntil2027/+.WemovetovaluingAirLiquideattheaverageof(i)aDCF,pointingtoafairvalueof€208,and(ii)2026PER/EV-EBlTDApeermultiples(i.e.LindeandAir

Products)ata10%discount(reflectingdifferencesinEBlTDAmarginandreturns),

pointingtoafairvalueof€204onaverage.Weseethisasappropriateduetoreduced

relianceonlong-termassumptionsonly(withaDCFbeinghighlysensitivetosales

growth/discountrates/terminalvalueestimates)andtocapturecurrentmarketsentimentaswellasrelativevalue(viamultiples).Thisincreasesourpricetargetto€206(from€152previously),offering~16%upsidethecurrentshareprice.

Newnumbers.WehavechangedourFY26-28AdjEPSestimatesby-3%/+3%/+10%,

reflecting(i)fasterElectronicsgrowth;(ii)morematerialmarginexpansion(withthe

companytargeting+100bpsofmarginexpansioninboth2026/27);(iii)aslightlylowertaxrate,withourFY26taxrateat26%(from27%previously);and(iv)slightlylowernet

financecosts(FY26€441mvs€460mpreviously).lnaddition,(v)wehaveincorporatedthestocksplit.

WhatwouldmakeusUW:Wewouldturnmorecautiousif(1)thereisastructural

worseningofindustrialgrowth,whichwouldimpacttheLargelndustriesbacklog/growth,includingEuropeseeingmorechemicalplantclosures,loweringthepotentialforAir

Liquidetorenewlong-termtake-or-paycontracts;and/or(2)energytransitionprojectsfailtodeliverongrowth;and/or(3)lndustrialMerchantfallsex-pricingforaprolongedperiod.

MoRGANSTANLEyREsEARcH13

Exhibit24:AirLiquidevsPeersLFLCAGR(%)

Source:CompanyData,MorganStanleyResearch

Exhibit26:AirLiquideMSeNewvsOld(€m)

Source:CompanyData,MorganStanleyResearchEstimates(E)

Exhibit25:AirLiquidevsPeersAdjEPSCAGR(%)

Source:CompanyData,MorganStanleyResearch

Exhibit27:AirLiquideMSevsVAConsensus(€m)

Source:CompanyData,VisibleAlphaConsensus,MorganStanleyResearchEstimates

14

Exhibit28:

AirLiquideDCF(€m)

Source:CompanyData,MorganStanleyResearchestimates(E)

MorganstanleyRESEARCHFouNDAtioN

MoRGANSTANLEyREsEARcH15

Novonesis(OW):ADifferentLensonValuation

MorethananIngredientscompany.NovonesisisoftenloopedintotheIngredients

basketandbenchmarkedagainstnamessuchasDSM-Firmenich,SymriseandGivaudanorevenCrodaandKerryGroup.Thismakesforaratherincompletepicture,inourview,giventhefollowing:(i)Novonesisoffersstructurallysuperiorgrowth(8%LFLvsIngredients

Peersat4%onaverageoverthelast5years);(ii)itenjoyshighbarrierstoentryacrossallsegments/sub-segments,withessentiallynilexposuretoChinesecompetition,unlikesomeingredientplayers,withintensifyingAsian(esp.Chinese/Indian)competitionacross

fragranceingredients,supplements,texturisers,sunfilters,etc.;(iii)Novonesisdelivers

standoutprofitability(~35%vsIngredientpeersat~21%)andbetterFCFgeneration

(~14%FCF/Sales,withapick-upinrecentyearsversusIngredientpeersat~9%overthesameperiod),despitehigherinvestmentintensitythanmost.Inaddition,(iv)thecompanyhas~36%ofitsportfoliogearedtoverydifferentendmarkets(i.e.theagriculture,energyandtechsub-segments).

Benchmarkingquality.WithNovonesisenjoyingclear,high-qualitygrowthcompoundercharacteristics,webelieveasetofcomparableplayerswouldbemoresuitableto

establishfairvalue.IncollaborationwithvariousMorganStanleyEUResearchteams

(acrossAerospace&Defense,ConsumerStaples,ConsumerDiscretionary/Luxury,CapitalGoods,Construction,andPharma),wehaverequestedourcolleagues'mostlong-term/through-cycledefensivequalitycompoundersnames.Wehaveshort-listedthefollowingnamesforcomparison:AtlasCopco,AstraZeneca,Belimo,Halma,Hermes,Ferrari,Inditex,L'Oreal,Lindt,LVMH,RichemontandSafran.WhencomparingthesenamestoNovonesis,theyholdonaverage:

•ComparableLFL/AdjEPSgrowth.Thecomparabilityofthepeergroupsitsinitsscarcityeconomics.Wenotethefollowingcharacteristics:(i)Ahighlyspecialisedofferingand/orsolution,sometimesrepresentingasmallpartoftheoverallcostbutacriticalpartoftheuniqueselling/functioningproposition,therebysupportingpricingandcustomerretention–thisincludesHalmaandBelimo,aswellasFerrari,RichemontandHermes,wherethe"specialty"factoriscraftmanshipthathas

enabledexceptionalbranddesirability,orLindt,whichtargetspremium

positioning).(ii)Lowswitchingrisk–thisincludesSafran,whichholdsstrong

aftermarketeconomicsbutismoreNWCintensive,andAtlasCopco,whereonceequipmentisinstalled,customersrequireservicingformanyyears,withservicingsalesgenerallymoreprofitablethanoriginalequipment,whichalsohelpsto

reduceearningscyclevolatility).(iii)HighR&D/entrybarriers,giventhedifficultyofscalingtechnology,patentsandregulatoryprocesses–thisincludesAstraZeneca.ThepeergrouphasoutpacedNSISBoverthelast5yearsonaverage,with11%LFLgrowth(vsNSISBat8%)andanAdjEPSCAGRof20%(vsNSISB's13%)overthesameperiod,althoughthiswasledbyasmallergroupofplayers,including

Hermes,LVMH,FerrariandInditex(andincludesvariousacquisitions).Looking

forward,thatissettoslightlychange,withNSISBpoisedtoofferacontinued12%AdjEPSCAGRthroughFY28andpeersmoderatelyslowingto11%,especially

thosesamenames(onMorganStanleyResearchEstimates).

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•NSISBdeliverssuperiorprofitmargins...Whilethepeergroupoffersstrong

profitability,withEBITDAmarginsaveraging~28%overFY20-25(andsetto

expandto~30%onaverageforFY26-28),Novonesisgeneratesprofitmarginsof700bpsinexcessofthatlevel,mainlysupportedbyitshighgrossmargin(inasimilarveintoplayerssuchasHermes)a