Berenberg downgrades Victrex to 'hold'

Berenberg downgraded Victrex to ‘hold’ from ‘buy’ and cut the price target to 1,620 from 1,800 citing a lack of earnings catalysts from consumer electronics capacity.

In addition, the bank pointed to the introduction of new PEEK (polyether etherketone) capacity by Solvay. It noted that Solvay is Victrex’s largest competitor in PEEK, adding that by the end of 2016, it will complete a widely known capacity expansion from 1,000 to 2,500 tonnes.

Berenberg said that following analysis of the potential uses of PEEK within consumer electronics, it concluded that its widespread adoption of PEEK for use in smartphones beyond lower-volume specialities, such as films for speaker diaphragms, if it does occur, may favour Solvay.

“Solvay’s ability to offer cheaper alloys of PEEK with other polymers from its portfolio could give it a significant advantage on cost. While we understand Victrex is working on using other, potentially cheaper, PEEK composites, the underlying issue is that the mechanical advantages of Victrex’s ‘Type 1’ PEEK are arguably less relevant for electronics than other segments, such as aerospace.”

The bank cut its earnings per share estimates for 2016 and 2017 by 6.4% and 2.2%, respectively, to reflect a drop in expected consumer electronics volumes and a more subdued outlook for Victrex’s oil and gas business.

At 1033 BST, Victrex shares were down 1.9% to 1,586p.