CPH Group's Resilient Earnings and Strategic Expansion: A Strong Buy for Long-Term Growth in 2025

In an economic climate marked by geopolitical tensions and volatile currency movements, the CPH Group AG (LON:0QNZ) has emerged as a standout performer in the chemical and pharmaceutical packaging sectors. With resilient earnings, strategic acquisitions, and a clear alignment with industry tailwinds, the company presents a compelling value proposition for long-term investors seeking exposure to a high-growth, defensive play.

Resilient Earnings Amid Headwinds

The CPH Group's first-half 2025 results underscore its operational discipline and margin resilience. Despite a 0.5% decline in net sales to CHF 176 million, the company maintained a robust EBITDA margin of 17.2%, with EBITDA rising 0.1% to CHF 30.2 million. While currency headwinds and higher acquisition-related depreciation pressured EBIT and net results, the core business demonstrated stability. This is particularly notable given the broader industry's struggles with inflation and raw material costs.

Key to CPH's resilience is its diversified portfolio. Zeochem, the group's chemical division, delivered a 17.4% EBITDA increase to CHF 12.2 million, driven by the integration of Sorbchem India and process optimizations. Meanwhile, Perlen Packaging, despite a 12.6% EBITDA decline, is poised for a rebound in the second half of 2025, with a fully automated plant in Brazil set to boost efficiency and order volumes.

Strategic Expansion Drives Future Growth

The CPH Group's strategic acquisitions are a cornerstone of its long-term growth thesis. Zeochem's acquisition of Sorbchem India and the upcoming integration of SiliCycle in Canada are expanding its footprint in high-growth markets for chromatography gels and specialty chemicals. These moves align with the global demand for advanced drug delivery systems, a sector projected to grow at a CAGR of 8.5% through 2035.

Perlen Packaging's acquisition of LOG Pharma in Israel and Hungary has similarly strengthened its position in pharmaceutical packaging. The company's expansion into emerging markets—where healthcare expenditure is rising—positions it to capitalize on the sector's structural growth. Notably, CPH's automated plant in Brazil is expected to offset prior challenges, with EBITDA for the full year 2025 anticipated to match or exceed 2024 levels.

Sector Tailwinds: A Tailored Investment Opportunity

The pharmaceutical packaging industry is on a strong growth trajectory. By 2035, the market is expected to expand at a steady CAGR, driven by rising demand for biologics, injectables, and sustainable packaging solutions. North America and Asia Pacific, two regions where CPH is actively expanding, will lead this growth. For instance, India's pharmaceutical market is projected to grow at a 12% CAGR, while Brazil's demand for advanced packaging is being fueled by its expanding healthcare infrastructure.

CPH's focus on sustainability further aligns with industry trends. Perlen Packaging's shift to eco-friendly materials and Zeochem's process optimizations reflect a proactive approach to regulatory and consumer demands for greener solutions. This not only reduces long-term costs but also strengthens the company's competitive positioning in markets like the EU, where environmental regulations are tightening.

Attractive Valuation and Margin Stability

CPH's valuation metrics suggest it is undervalued relative to peers. With a forward P/E of 12.15 and EV/EBITDA of 9.37, the stock trades at a discount to larger rivals like Gerresheimer AG (EV/EBITDA of 8.1x) and West Pharmaceutical Services (EV/EBITDA of ~21.4x). This discrepancy reflects CPH's smaller scale but also highlights its potential for outperformance as its acquisitions scale and margins stabilize.

The company's balance sheet further supports its investment case. A solid equity ratio of 54.3% and net debt of CHF 30.3 million provide financial flexibility for future acquisitions or dividends. Management's confidence in 2025 guidance—despite macroeconomic headwinds—underscores its conviction in the strategic roadmap.

Risks and Mitigants

While currency fluctuations and integration costs pose risks, CPH's diversified geographic exposure and hedging strategies mitigate these. Additionally, the company's focus on high-margin segments (Zeochem's 21.2% EBITDA margin) provides a buffer against short-term volatility.

Investment Thesis

The CPH Group combines resilient earnings, strategic growth through acquisitions, and alignment with multiyear industry trends. Its undervalued metrics and strong balance sheet make it an attractive long-term hold for investors seeking exposure to the pharmaceutical packaging sector. With full-year EBITDA expected to exceed 2024 levels and a clear path to margin expansion, the stock is well-positioned to deliver outsized returns in a challenging macro environment.

Recommendation: Strong Buy for long-term investors with a 2–3-year horizon. Target entry range: CHF 18–20 per share.