LONDON (ShareCast) - (Sharecast News) - JPMorgan Cazenove downgraded Elementis on Monday to 'neutral' from 'overweight' as it said upside potential was now lower.
The bank said its previous bullish case on Elementis - associated with balance sheet deleveraging, portfolio upgrade and associated improved earnings quality, and better earnings delivery from self-help cost actions - has largely played out.

This is reflected in the outperformance of the shares, which are up 13% over the past year, versus the sector down 3%, and up 48% over the past two years versus the sector down 2%, JPM said.

It's also reflected in the valuation, which has now re-rated close to Croda and well above the median multiples of diversified chemical companies.

"If the company can execute on its new mid-term plan, we see potential for 2027E adjusted EPS of USD 16.9 cents, which is 5%/7% above new JPMe/pre-results company consensus," it said. "That said, the new plan is more dependent on organic growth acceleration and we await execution on this before fully reflecting the associated upside in our estimates.

"Owing to a history of takeout offers (in 2020/21) and an improved and focused portfolio since, we continue to view the stock as a potential takeout candidate."

However, JPM said the likely take-out multiple of 11-12x EBITDA doesn't offer as much of an outsized upside potential in shares anymore.

"We hence downgrade Elementis shares to neutral," it said, adding that Croda - which it recently upgraded to 'overweight' - is its top long in UK chemicals.

JPM maintained its 186p price target on Elementis.

At 1010 BST, the shares were down 0.9% at 168.00p.

Email this article to a friend

or share it with one of these popular networks:

• DIGG
• FACEBOOK
• STUMBLEUPON
• MIXX
• YAHOO BUZZ
• DELICIOUS
• REDDIT
• NEWSVINE