Credit Suisse raises target on Victrex, says PEEK competition concerns exaggerated

Credit Suisse lifted its earnings per share estimates and target price on Victrex stock after the company announced a reduction in its tax rate.

With UK Patent Box legislation set to lower the company's tax rate from 20% to 12%, earnings per share were now seen roughly 11% higher over the forecast period.

The polymer manufacturer's dividends, investments and free cash flow yield should all benefit as a result too, the Swiss broker said.

Furthermore, growth in end markets for Electronics, Automative and Value added resellers would more than offset the lower volumes in consumer electronics.

Fears of competition in the market for polyether ether ketone market were overdone, according to Credit Suisse.

Quite the oppossite, the entry of Solvay into the PEEK market would accelerate its expansion, by helping to ensure safety of supply, increasing the potential applications for PEEK and generating greater customer awareness.

"We do not consider this a threat to pricing due to the value-add nature of the product and B2B nature of transactions. We believe Victrex will remain market leaders and the risk of product substitution is low."

For all of the above reasons, the broker reiterated its 'outperform' recommendation on the shares, lifting its target price from 2,300p to 2,450p in the process.

In terms of valuation, based on consensus numbers the shares were changing hands on a 12-month forward EV/EBITA multiple of 12.1, for an approximately 12% discount to peers based on historical levels.