UBS downgrades ConvaTec amid slowing wound market

26th Oct 2018 10:32

(Sharecast News) - Medical products and technologies company ConvaTec fell on Friday as UBS downgraded the stock to 'neutral' from 'buy' and slashed the target price to 150p from 250p, pointing to a slowdown in the wound market - to which the group is over-exposed - and limited progress in the ostomy turnaround.In addition, the bank highlighted concerns that EBIT margins will continue to decline, as investments are likely still required in internal controls, marketing and R&D, as well as capex.UBS said it expects just 2% group organic sales growth in all future periods."We assume structural market share loss in Ostomy, with a 1% sales compound annual growth rate, ignoring significant investments aimed at delivering market growth of 5%. We also assume margins decline a further 100 basis points before stabilising at 22.5% from 2020, ignoring guidance of upside from 2020 from operating leverage and margin strategy to be announced in February 2019."In its upside scenario, UBS sees fair value at 240p a share. However, without a CEO and after high senior staff turnover since IPO, it's hard to get comfort execution issues won't continue, it said.Earlier this month, ConvaTec shares tumbled as it issued a profit and announced that CEO Paul Moraviec was stepping down.At 1050 BST, the shares were down 2.5% to 145.40p.