Elementis rallies on Berenberg upgrade to 'buy'

Elementis shares rose on Tuesday as Berenberg upgraded the speciality chemicals and personal care business to 'buy' from 'hold', saying it's undervalued and the market is assuming the worst as far as its acquisition of Mondo Minerals is concerned.

It noted the shares have underperformed the European chemicals sector by 12% since the company's poorly-received announcement back in June of its acquisition of talc group Mondo Minerals for $600m.

"The shares have barely moved, even when the company’s subsequent public acknowledgement (on 31 July) of investors’ concerns cast the deal into doubt. The market appears to have adopted a 'whoever wins, we lose' attitude towards the potential conclusion of the acquisition.

"While we agree that the deal is at best value neutral, we i) doubt it will complete if the company has been forced to go as far as to highlight investors’ concerns publicly, and ii) believe that Elementis is undervalued under all scenarios."

Berenberg attributed disappointment over the Mondo deal in part to the fact that it muddies the narrative on the disproportionately fast growth of personal care, guided at around 7% a year. The bank reckons there is only a 10% chance the deal will go through.

At 1400 BST, Elementis shares were up 5.2% to 269p.