May 2026

Canary in the Coalmine - The pre-buy effect

Across Q1 results, a consistent theme of pre-buying has emerged, with companies in chemicals, packaging, and building materials all flagging an unusual acceleration in order patterns toward the end of the quarter. Driven by a combination of inventory safety stock building, tactical purchasing ahead of announced price increases, and an early Easter pulling forward demand, the effect has been notably broad-based.

Management teams at Evonik, Croda, and DSM were among the most explicit, with Evonik noting that the late-March volume pickup "was likely not an improvement in underlying demand" but rather "pre-buying with customers aiming to secure volumes and potentially avoid price increases." Croda similarly observed that its order book was "slightly higher than expected," reading into that "an element of pre-buy." DSM flagged "an acceleration of the order pattern towards the end of March, which is out of the ordinary," while Geberit acknowledged that April numbers were "most probably already driven by pre-buying from wholesalers" following its announced price increase.

While this dynamic has flattered Q1 numbers across the space, it sets up a more challenging backdrop for Q2 earnings as volumes revert to a softer underlying baseline. The key watch point for coming quarters will be whether order books begin to normalise in May and June as the pre-buy unwinds — and whether companies that have benefited most from this pull-forward effect face a harder second half as a result.

Mid Cap of the Month - ISS

ISS is a provider of facility and workplace management services to public and private sector customers in over 30 countries. They provide cleaning, technical maintenance, food services, reception and workplace support to customers either as a single service or via an integrated contract providing multiple services.

ISS is a good stock to own in uncertain times. They provide essential services, have long contract visibility (3-5 years) and high revenue retention (c94%). Management has taken action in the last 18 months to improve the quality of the underlying business and has refocused the organisation which we believe will continue to bear fruit through improved growth. ISS is trading roughly inline with its pre-COVID average multiple of 12.5x EV/EBIT with the potential to grow faster going forward. ISS shares have performed well since we entered the position in early March and we continue to see multiple catalysts to drive the share price going forward.

The key components of the thesis are (1) a resolution of the Deutsche Telekom (DTAG) arbitration, (2) continued positive execution and consensus upgrades throughout the year and (3) medium term guidance at a CMD later in the year.

DTAG arbitration. ISS and Deutsche Telekom (DTAG) have been in arbitration proceedings since 2022 over contractual disagreements relating to work performed but not paid for. The Deutsche Telekom contract represents c5% of group revenue but with profitability just above breakeven. The contract has been a clear overhang to the shares due to the missing payment and the profitability drag to the group. The tone of the communication from management has shifted with the FY25 results, becoming more constructive. Previously management stated they were “awaiting a ruling from the tribunal” and the ruling timeline was unconfirmed. Now management state that both parties have “engaged in discussions on a potential settlement” whilst also awaiting a ruling from the tribunal. Either way, a final outcome should be expected by the end of 1H26. An improvement on the contractual terms with DTAG would be take positively, even if the DKK600m is not fully repaid in our view. We are optimistic that a resolution would remove the overhang from the stock.

Share buyback. ISS has an existing share buyback program of DKK2.5bn for FY26 which has been described by ISS as a starting point with scope to re-assess later in the year. In FY25, ISS started with DKK2.5bn and later increased to DKK3bn (c7% of market cap). We believe there is further headroom to increase even without a resolution payment from DTAG, but any payment here could also provide further upside.

Growth and guidance. Management has guided to revenue growth >5% and margins >5% in 2026. Revenue growth is driven by price (indexed to salary inflation and CPI of materials used), new contract wins, net volume growth with existing customers (contract extensions) and “above base” activity. We see upside to consensus due to improving and continued execution on the commercial pipeline which will convert to net new wins and volume growth with existing contracts.

Commercial momentum and above base. ISS has made positive changes to drive commercial momentum such as simplifying the organisation, hiring new leadership and increasing commercial focus which is now having a visible improvement, with LfL growth (new + volume growth) turning positive in 4Q25 (the first time since 2023). Above base refers to non-contracted services performed for an existing customer. The guidance assumes a contribution of zero for FY26 due to the lower visibility on these revenues. In 1Q26, above base took a step up to 1.5% YoY growth (vs average of 0.5% in FY25). It is true that above base has lower visibility and less certainty but we believe it can contribute positively to growth in FY26. Some of the step up was partially driven by  structural and repeatable changes. This includes educating the workforce and encouraging them to be more proactive in looking for above base opportunities (with adjusted incentives) and using AI tools to analyse what services are included in the contracts and charging appropriately for additional work.

CMD outlook. We expect a CMD later in the year, where management will likely outline the pipeline and growth opportunities, margin opportunities from shared service centres to drive more operating leverage in the business, along with more detail on the stabilised but underperforming US business (which we see as optionality). We hope they will provide a clear medium term financial framework which would be taken positively.

🌟Starr's Rating

the Devonshire, 17 Denman St, London, W1D 7HW

Walk around London and you’ll notice people of all ages standing outside pubs, armed with pints of Guinness. Guinness is one of the hottest trends in the alcohol market; growing double digit in the last 5 years. The Devonshire is a new age pub cos-playing as a traditional boozer, and is alleged to serve the “best Guinness in London”. Rumour has it they sell 20,000 pints of it in a week. I don’t personally drink Guinness, however I did get an elusive booking at the restaurant that sits above the heaving pub. I entered a sceptic and left a convert.

The pub itself is an overly hyped darling of social media and when people described the food as good, it was met with a raised eyebrow. I went with a friend and we tried the £29 set menu. Available at any time of day, the menu starts with langoustine and prawn cocktail, is followed by steak and chips, and finishes with sticky toffee pudding. Simple, but very tasty. I don’t need to explain how food inflation has increased massively in the last 4 years and it’s fair to say for £29 my hopes weren't high. The meal far exceeded my expectations and I really enjoyed it. The starter was nice (not standout), the steak cooked perfectly and the chips were delicious. The sticky toffee pudding really hit the spot, even if it was a little too sweet. This is a classic unpretentious menu delivered very well.

I left feeling full and had a genuinely pleasant meal. If you can get a reservation, I’d highly recommend trying the Devonshire for dinner (albeit I would still suggest giving the pub itself a wide berth).

Take your: Mate

StarrRating: ⭐⭐⭐⭐⭐⭐⭐ + (7.5/10)

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