Berenberg ups target for Elementis in anticipation of higher talc prices
Analysts at Berenberg raised their target price on chemicals firm Elementis from 180p to 200p on Wednesday, stating that supply and demand in the speciality talc market was likely to improve over the next few years.
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Berenberg said of all the headwinds that had beset Elementis' shares over the last two years, the announcement of the acquisition of talc producer Mondo Minerals had easily been the "most severe", even when allowing for cyclical headwinds underlined in January's profit warning.
The German bank pointed out that Elementis trade more than 25% below the level of the mid-2018 acquisition.
"Even the $100m discount to the $600m original purchase price was not enough to convince the market of the merits of the deal," said the analysts.
Berenberg took the time before Elementis' 2019 full-year results on 3 March to review the market for talc and stated that supply/demand in the speciality talc market looked set to improve over the coming years and added that there was even scope for prices to rise at a faster rate than the historical 1-2% per annum.
"Given a gradual tightening of global supply/demand in speciality talc and the litigation-induced bankruptcy of the US talc unit of market leader Imerys, there could be scope for 3-4% pa price increases over the next years. 4% pa increases to 2022 would drive up our base-case 2022 group EBIT forecast by over 10%," said Berenberg, which also reiterated its 'buy' rating on Elementis.
Berenberg did cut its underlying earnings estimates for 2019-21 by an average of 10%, reflecting lower margins in chromium and antiperspirant active ingredients but noted that both headwinds appeared "temporary".