Story
Elementis Initiated at 'Buy' by Kepler Cheuvreux on Transformation Potential
Summary
Kepler Cheuvreux has started coverage of specialty chemicals firm Elementis with a 'buy' rating, arguing that the market undervalues its recent operational transformation and potential for a stock re-rating.
Kepler Cheuvreux initiated coverage of Elementis (ELM.L) with a "buy" rating, setting a price target that suggests significant upside for the specialty chemicals company. The broker's analysis indicates the market has not fully priced in the firm's recent strategic and operational improvements.
Analyst's Rationale
Kepler Cheuvreux's initiation comes with a price target of 205 pence, which represents a potential upside of 30.6% from the 157 pence price cited in the report. The broker stated that it believes "the market still underappreciates the group’s recent transformation."
Kepler highlighted that Elementis's operational metrics, such as a Return on Capital Employed (ROCE) of approximately 30%, now rival those of top-tier specialty chemicals players. The firm expects that strong financial results will serve as a catalyst for a re-rating of the stock, with the company's first-half results on July 30 noted as the next key event.
AdStrategic Repositioning
The bullish outlook follows several key corporate actions by Elementis aimed at refining its business focus. On June 2, the company completed the sale of its pharmaceutical manufacturing business to Associated British Foods for an enterprise value of €34.3 million, generating net cash proceeds of about €30 million.
In a statement, Chief Executive Luc van Ravenstein said the transaction sharpens the company's focus on its core markets and repositions Elementis as a pure-play specialty chemicals company. Following the sale, Elementis announced on June 3 the launch of a share buyback program of up to £25 million, which is intended to reduce share capital and is scheduled to run until February 28, 2027.