Berenberg lowers target price on Eurocell

Analysts at Berenberg slightly lowered their target price on UPVC products supplier Eurocell from 360.0p to 340.0p on Thursday despite the group delivering “another solid update”.
Berenberg stated that Eurocell’s recent trading update was a “good” one, with the firm maintaining guidance despite significant inflationary pressure.

However, the analysts pointed out that Eurocell’s shares had de-rated by 23% in recent months, opening up an “attractive entry opportunity”, especially with the company’s turnaround “progressing well”, continued outperformance driven by market share gains and favourable sustainability credentials.

Although the German bank reiterated its ‘buy’ rating on the stock, it said it had chosen to trim its price target on Eurocell’s shares as the relative multiple-based element of its valuation methodology was affected by recent market moves.

Berenberg also stated that Eurocell’s outer-year forecasts were still undemanding, with its 2022 full-year forecasts implying that revenue will be broadly flat year-on-year despite some annualisation from price increases in 2021 and roughly 3% in incremental growth from its branch rollout programme.

“This implies an organic volume decline of 5% yoy despite the group benefiting from robust RMI activity, the recovery in the new-build market and market share gains aided by product range, vertical integration and the branch roll-out,” said the analysts.

“We highlight that between 2016 and 2019, Eurocell delivered a 6.5% organic revenue CAGR, significantly outperforming its end-markets. We believe this outperformance is not reflected in consensus. We also expect margins to benefit from the recent investment in a new warehouse, which is now complete. We forecast adjusted EBIT margins to recover to 8.9% in 2022E, still 220bp below 2017 levels. We believe risk is skewed to the upside.”

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