UBS downgrades ConvaTec amid slowing wound market

Medical products and technologies company ConvaTec fell on Friday as UBS downgraded the stock to 'neutral' from 'buy' and slashed the target price to 150p from 250p, pointing to a slowdown in the wound market - to which the group is over-exposed - and limited progress in the ostomy turnaround.

In addition, the bank highlighted concerns that EBIT margins will continue to decline, as investments are likely still required in internal controls, marketing and R&D, as well as capex.

UBS said it expects just 2% group organic sales growth in all future periods.

"We assume structural market share loss in Ostomy, with a 1% sales compound annual growth rate, ignoring significant investments aimed at delivering market growth of 5%. We also assume margins decline a further 100 basis points before stabilising at 22.5% from 2020, ignoring guidance of upside from 2020 from operating leverage and margin strategy to be announced in February 2019."

In its upside scenario, UBS sees fair value at 240p a share. However, without a CEO and after high senior staff turnover since IPO, it's hard to get comfort execution issues won't continue, it said.

Earlier this month, ConvaTec shares tumbled as it issued a profit and announced that CEO Paul Moraviec was stepping down.

At 1050 BST, the shares were down 2.5% to 145.40p.