Analysts take axe to Convatec after warning of lower profits

Convatec Group's management has lost a lot of credibility after its profit warning at the start of the week, analysts at several banks said, with ratings on the catheter and wound care specialist downgraded by HSBC, JPMorgan Chase and RBC Capital Markets.

Analysts at all three banks downgraded Convatec on the basis of Monday's warning, where the company said it may also need to revise its growth targets for 2018.

HSBC said that while the medical supplies firm continues to be an attractive prospect, its credibility has received a major hit following Tuesday’s quarterly results.

“While the structural equity story remains sound, we think it will take time before the shock of the warning is digested,” HSBC said, lowering its recommendation to ‘hold’ from ‘buy’.

Convatec said the lower-than-expected profits would come about for the period due to delays in the transfer of manufacturing.

According to JPMorgan, which lowered its recommendation to ‘neutral’, the management’s credibility was a key concern.

“Investors are likely to view a further operational mishap as eroding management’s credibility and the investment case, especially given uncertainty surrounding the FY18 outlook and the timeline of the MIP,” the bank’s analysts said.

Convatec shares fell more than 21% on Monday morning to below the 225p flotation issue price in October 2016.

RBC lowered the medical group’s target price to 260p from 340p as a result of the trading update, while also moving down to ‘sector perform’ from ‘outperform’ on the stock.