JPMorgan recommends to take profits at Synthomer

8th Apr 2014 09:50

Chemicals business Synthomer was trading firmly lower on Tuesday morning after JPMorgan Cazenove downgraded its rating on the stock from 'neutral' to 'underweight' after an 'impressive' run over the last 12 months. "We believe a combination of increasing competition, pricing pressure, heavy emerging market exposure and currencies will lead to downgrades in 2014," JPMorgan said. The bank said it sees this "as an opportunity to take profits" following a 40% re-rating of the shares with the valuation now looking "stretched".It sees "scope for a de-rating" given that the shares now trade at 14.9 times 2014 estimated earnings, a 60% premium to its historical average.The bank believes that Synthomer's volumes should recover as the company benefits from a gradual recovery in demand in Europe, though this is now factored into consensus estimates. However, pricing may suffer from new competition and pressure on downstream customer margins.Meanwhile, new competition is on its way as several recent new competitor plant announcements could impact on Synthomer's latex and dispersions businesses, which together are estimated to represent half of group sales.The target price for the stock has been cut from 260p to 230p.The shares were down 6.3% at 273.2p by 09:08.BC