Berenberg raises target price on Synthomer

Berenberg said Synthomer’s first-half results delivered "a smooth riposte to bears", who had previously argued that the company's cyclical business mix warranted a discount to the wider sector and that its equity story was "overly dependent" on mergers and acquisitions.

The German bank pointed out that adjusted pre-tax profits of £58.0m was a 10% beat versus consensus expectations, driven primarily by the group's legacy business in the construction-and-coatings-focused functional solutions segment.

"The underperformance of the shares relative to construction and coatings plays like Sika, AkzoNobel and Sherwin-Williams (up by circa 20% year-to-date versus down by 10% for Synthomer) is likely to be short-lived, especially as Q2 exit volumes in several areas are approaching normalised levels," said the analysts, who also remained buyers of the stock.

"Synthomer, in our view, combines the virtues of an undemanding valuation, high free cash flow yield, above-sector returns and additional upside from M&A."