Berenberg lowers target price on Elementis

Berenberg stated that despite "a stalled recovery" for the industrial chemicals sector in H2, Elementis' qualitative trading update was "in line with investor expectations", with these having already been raised at the half-year.

Q3 revenues rose 3% year-on-year on a constant currency basis, helped by price and mix benefits in its coatings unit, and "solid growth" in its personal care division.

The German bank, which has a 'buy' rating on the stock, also noted that a ruling from the Court of Justice of the European Union in a long-running tax dispute related to state aid went in Elementis' favour.

However, Berenberg also noted that the most important factor for the stock price in the last few weeks has been concern over the status of talc, and this has not become clearer.

"The main reason is the recommendation in September from the Risk Assessment Committee of the European Chemicals Agency to classify talc as a 1B carcinogen. This would categorise the substance as having carcinogenic potential that is presumed, often based on animal data. We suspect that most investors aware of the review had been anticipating a less severe Category 2 classification," said Berenberg.

"The EU Commission is expected to make a decision on this topic by Q1 2026, after which a grace period for existing producers would apply. The industry body (Eurotalc) is likely to appeal. In essence, we think that the status quo is, from a legal perspective, likely to persist for most of the 2020s, even under a 1B classification."

Reporting by Iain Gilbert at Sharecast.com