Night Watch Investment Partners LP on Azelis Group NV

Night Watch believes specialty chemical distributors are approaching an earnings inflection after a prolonged three-year bear market in chemicals. Customer inventories accumulated after the Covid-era shortages have largely been worked down just as shortages and higher prices are appearing across petroleum-derived chemical products. Distributors can benefit because their customers depend on small quantities of essential ingredients and are motivated to secure supply even when prices rise. Higher growth should improve margins, reduce leverage and give companies additional capacity for value-creating acquisitions. At the same time, valuations are in the low teens compared with historical multiples well into the 20s, while falling Chinese exports are weakening one of the sector's main structural bear arguments.