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Peel Hunt lowers target price on Synthomer ahead of OMNOVA acquisition

By Iain Gilbert

Date: Monday 16 Sep 2019

Peel Hunt lowers target price on Synthomer ahead of OMNOVA acquisition

(Sharecast News) - Analysts at Peel Hunt trimmed their target price for shares of British chemicals firm Synthomer from 450p to 435p on Monday, noting that opportunities stemming from its proposed acquisition of OMNOVA Solutions should offset weak European demand.
Peel Hunt said there were no signs of a pick-up in European industrial activity in the third quarter and, as a result, felt it was "prudent" to trim its full-year forecasts on the firm.

However, while Peel Hunt expected that trading for Synthomer's European-focused Styrene Butadiene Rubber (SBR) unit would remain "challenging" in the second half of the year, it felt that the synergies from the purchase of OMNOVA and an eventual recovery in European demand would drive a re-rating in the shares.

The broker also updated its model for the group's recent rights issue.

"We have reduced our FY19 and FY20 PBT forecasts for Synthomer, ex-OMNOVA, by 5% & 3% respectively, to £135m (30.5p) and £150m, but have now adjusted our model for the recent £204m rights issue and are assuming a full-year contribution from OMNOVA in 2020," said analyst Dominic Convey.

Including OMNOVA, Peel Hunt now forecasts full-year 2020 pre-tax profits of £178m but also expects the transaction to increase group net debt towards £700m at the end of 2019, to approximately 2.8 times underlying earnings on a pro forma basis.

"We expect progress on the OMNOVA synergies, steady de-leveraging of the balance sheet and ultimately an improving outlook for European industrial demand to drive a justified re-rating," concluded Convey, who stood by his 'buy' recommendation on Synthomer.

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