Portfolio

Berenberg lowers target price on Forterra

By Iain Gilbert

Date: Friday 26 Nov 2021

(Sharecast News) - Analysts at Berenberg lowered their target price on construction firm Forterra from 300.0p to 280.0p on Friday, citing "limited" near-term organic upside.
Berenberg stated that while it expects housebuilding activity to continue to recover, Forterra was capacity constrained in its clay brick business until 2024/25 for the company's new Desford plant to drive "a significant increase in profitability".

"We forecast for the group to have a small net-cash potion at year-end. However, Forterra's focus on Desford and the £27.0m modernisation of the Wilnecote factory means that it is unlikely to pursue any major M&A, in our view, which limits any potential inorganic upside to the shares over the next 12 months. Moreover, although the new Desford facility will improve returns and add new capacity for the group to meet rising demand, we note that investors will need to wait for this benefit, with the financial contribution only beginning to materialise in 2023 and the full benefit not expected until 2025," said Berenberg.

The German bank, which reiterated its 'hold' rating on the stock, also highlighted that with just 60% of Forterra's energy requirements secured for the 2022 trading year, it thinks that better risk/reward cases can be found elsewhere in the sector.

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