Barclays downgrades Victrex on margin concerns

Barclays downgraded its recommendation on shares of polymer supplier Victrex on Friday to ‘underweight’ from ‘equalweight’, cutting the price target to 1,870p from 1,940p, citing concerns about margins over the next two years.

The bank said there’s growing risk that volumes disappoint but the real challenge for margins could come in 2021 when it assumes the full weight of fixed cost needs to be absorbed by fewer tons.

"We’re also worried about the risk of production cuts in important commercial aerospace platforms and a slowdown in Medical in Asia," it said.

With lower margins now likely, Barclays’ 2021 earnings per share forecast is 9% below consensus and implies minimal growth in the next two years.

"Today’s 20x price-to-earnings is appropriate if EPS growth is accelerating, we think, but not if it’s decelerating, and the +40% valuation premium to other cyclical chemical companies is now close to peak," it said.

At 1010 GMT, the shares were down 4.8% at 2,012p.