Analysis of global chemical distributors finds surprisingly littlevariance in like-for-like profitability. So why do multiples vary somuch? Relative value can be almost entirely explained byexpectations around future growth, we think. Brenntag couldmake outsized returns if it can rebase those perceptions.

Our preferred chemical distributor is now Brenntag, which we initiate on with an Overweightrating and a price target of €95 (+19% upside potential). We recognise that’s not a contrarian calland also not without risks, but in a best case scenario that Brenntag can show a more consistentperformance on growth, the upside potential could be very significant. Some of the best equitystories in chemicals over the last few years have come from a similar rebasing of growthexpectations, for example DSM and Novozymes. In Brenntag’s case, a lack of cost control meansEBITDA lagged gross profit growth by c.100bp p.a. over the last decade. Those problems havebeen identified by the new CEO and are being addressed. This report compares the four largestglobal listed chemical distributors to understand better what’s driving the valuation gap.