JPMorgan upgrades Elementis to ‘overweight’

by | Jul 7, 2023

(Sharecast News) – JPMorgan Cazenove upgraded Elementis on Friday to ‘overweight’ from ‘neutral’, keeping the price target at 144p, as it pointed to a relatively better earnings outlook supported by self-help actions.
It said: “Notwithstanding a tough near-term demand environment for the sector, we see a relatively better earnings backdrop for Elementis (ELM) thanks to: 1) Potential of a significant recovery in earnings in the Talc division from 2022 level of EBIT break-even (versus $25m run-rate pre Covid) driven by significant easing in energy costs and self-help actions; 2) Relatively better demand in the key categories that the company is exposed to in the Personal Care division (anti-perspirant or AP actives and colour cosmetics); 3) Material cost savings ($6m+) from the ongoing ramp-up of a new lower-cost AP actives plant in India; and 4) Potential upside from strong new business pipeline across two key divisions – Coatings and Personal Care – with a $200m pipeline in Coatings indicated earlier this year.”

JPM lifted its estimate for first-half 2023 adjusted EBIT by 8% to $54m and left its FY23/24 estimates almost unchanged at $102m/$114m, broadly in line with Bloomberg consensus.

“That the consensus can be held in an environment where we have seen large cuts elsewhere in the sector should reassure, in our view,” it said, adding that the valuation also looks undemanding, especially in the context of the recent step-up in M&A newsflow in the sector.

At 0955 BST, the shares were up 4.4% at 104.40p.

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