RBC Capital cuts Convatec target but insists it still has 'attractive qualities'

RBC noted that this is Convatec's second warning since its IPO and said it was reducing its FY18-20 estimates to match management guidance. The bank changed its revenue growth assumption for FY18 to 0.1% from 3% and its EBIT margin assumption to 23.3% from 24.8%,

Despite the warning and its cautious stance on the stock, RBC said the share price reset has gone too far and highlighted the fact that Convatec is still a cash generative business with attractive qualities.

"We would remind investors that Convatec is still a highly cash generative business, and at the current share price is generating a free cash flow yield of over 7%, with a dividend yield of 3%," it said.

"With the performance wanting we would hope all options are now on the table to maximise shareholder value."

At 1555 BST, Convatec shares were down 33% to 150.30p after it said earlier in the day that it now expects full-year organic revenue growth to be flat to 1%, down from 2.5% to 3% previously. It also announced that chief executive Paul Moraviec was leaving the company.