Credit Suisse upgrades Synthomer as risks abate

Credit Suisse upgraded its view of Synthomer and increased the speciality chemical company's target price as it sees negative risks surrounding oversupply and raw material pricing have started to abate.

The Swiss bank upped Synthomer's target price to 460p from 390p as it upgraded the maker of nitrile rubber for surgical gloves to 'neutral' from 'underperform'.

"We credit management for successfully limiting the negative profitability impact of nitrile oversupply and significant raw material price inflation in 2017 – we believe the business is now well positioned for further cost saves in 2018, organic growth in 2019 and potential large-scale M&A," analyst Matthew Hampshire-Waugh said in a research note on Wednesday.

He pointed to Synthomer's more resilient cost base, growth pipeline and integration of bolt-on acquisitions, which increased confidence that the company was "much better positioned to secure and execute on a large deal in the near term".

The FTSE 250 group excess of £200m on the balance sheet may lead it to search for "transformational M&A in adjacent chemistries/specialty chemicals", the analyst predicted, though further M&A was seen as both the biggest positive and negative risk.

"We believe Synthomer is fairly valued at ~10x EBITDA given the more limited downside risks on earning."

As of 1450 GMT, shares had picked up 3.30% to 516.50p.