Berenberg hikes target price on Synthomer

Berenberg said Synthomer's current situation reminded it of the predicament faced by the company in late 2008 and early 2009 as cyclical headwinds and "elevated, although not extreme" leverage left shares plunging to lows similar to today's level, falling by over 90% from Covid-19 pandemic highs.

The German bank, which reiterated its 'buy' rating on the stock, highlighted that Synthomer was "a classic early cycle share". However, it also pointed out that shares "more than quadrupled" in the subsequent two years following early 2009.

As far as Berenberg is concerned, the fully-underwritten £276.0m rights issue announced on 7 September has taken the sting out of the worst-case scenario, and the bank said that while it was early to upgrade, the attractions of a2025 price-to-earnings ratio of just 6.0x and 15% free cash flow yield on a de-risked balance sheet were "plain to see".

"The just over 10% average reductions to operating profit mainly reflect lower assumed nitrile latex margins and weaker volume outlook in 2024 for the construction-and-coatings linked component of sales. Our earnings per share changes are less meaningful, as the company has run a 20-1 for stock consolidation stock prior to the 6-1 rights issue," said Berenberg.

Reporting by Iain Gilbert at Sharecast.com