Berenberg raises target price on Avon Rubber following Ceradyne acquisition
Analysts at Berenberg raised their target price on respiratory protection equipment maker Avon Rubber from 1,650p to 1,800p on Monday, stating that its acquisition of 3M's ballistic-protection business and rights to the Ceradyne brand had been the deal it was "waiting for".
Berenberg said the $91.0m deal, announced on 7 August, was a "quality acquisition" that surpassed its expectations both strategically and financially, hence the 20-34% upgrades to its earnings estimates for the company.
The German bank also said the acquisition multiple was "attractive", particularly when considering the expected cost synergies from systems integration and back-office functions.
"Delivering these synergies is forecast to cost $10m, representing a two-year payback," said Berenberg.
Although it noted that a deal of this size "clearly" carries integration risks, Berenberg said order visibility was good given the expected ramp-up in two major contracts.
While Berenberg expected Avon's shares to "pause in the near term", its analysts said that investors should continue to look further ahead.
"This is a high-quality, high-margin, cash-generative business that we believe can grow to a multiple of its current size through organic growth and M&A," said Berenberg, which also reiterated its 'buy' rating on the firm.
"We believe Avon's products will continue to drive organic opportunities with new military and law enforcement customers. New product launches should further support growth and margins, potentially also opening new avenues of growth such as in civilian applications."