Dowlais Group PLC (LSE:DWL) fell 6.8% to 117.24p after analysts at investment bank Citi started coverage of the company with a 'sell' rating and a 97p share price target.
As a result, the group which was spun out of Melrose Industries PLC (LSE:MRO) topped the FTSE 250 fallers.
The broker noted the City consensus expects electrification to be neutral/positive for Dowlais, but its own analysis suggests battery electric vehicles could be a risk in the mid-term, with around 45-50% of sales seeing margin pressure.
As the battery EV component sector is a “technical and underresearched space,” research from Jefferies included in-depth proprietary work on the EV powertrain sub-sector and feedback from those involved in EV design and/or purchasing at car-makers.
“In a nutshell, many of the components Dowlais competes in are at risk of commoditization and/or content-loss and/or over-capacity in the BEV world amid current or upcoming tech disruptions,” it explained.
Relatively high net debt and almost zero free cash flow in the 2023 financial year add to the concerns, should the cycle turn, the broker added.
Citi also noted the stock is trading at a 20% premium versus peers.