Berenberg slightly raises target price on Synthomer

Analysts at Berenberg slightly raised their target price on chemicals firm Synthomer from 160.0p to 170.0p on Wednesday as it said 2023 should bring an end to the stock's downgrade cycle and some much-appreciated balance-sheet relief.

Berenberg said the nitrile latex market "appears to have bottomed", with prices around $1.0 per kilogram in December, and if the global financial crisis is any guide, the analysts suspect the same will be true of the coatings and construction chemicals markets in "about six months".

The German bank stated Synthomer's announcement in December of the divestment of its laminates, films, and coated fabrics businesses to German surfaces group Surteco for net proceeds of £199.0m also removes much of its balance-sheet risk.

"Even without other probable divestments, we forecast that net debt/EBITDA will fall from circa 4x at year-end 2022 to 2.5x by 2024, with potential acceleration of further divestments," said Berenberg, which reiterated its 'buy' rating on the stock.

"The decreases to our earnings per share estimates reflect the sale of the laminates, films, and coated fabrics businesses and the impact of weaker macroeconomic development in a roughly 50/50 ratio. Some of the most pronounced reductions to our estimates come in the acrylate monomers segment as the post-Covid-19 upswing in acrylic prices unwinds; we also make broad cuts to our volume forecasts for functional solutions and adhesives technologies. Shares trade on a 2024 free cash flow yield of over 10.7%, circa 200 basis points higher than diversified industrials proxy BASF."

Reporting by Iain Gilbert at Sharecast.com