Victrex PLC (LSE:VCT) has spent much of the past seven years falling short of the standards it set during its heyday, but Stifel believes the specialist polymer maker is approaching an inflection point under new chief executive Jakob Sigurd Routh.
The broker initiated coverage with a 'buy' rating and a 750p price target, arguing that with the FTSE 250 group's earnings at the lowest level since 2009, risk is "asymmetrically upside weighted" and the shares offer "an attractive entry point".
Victrex is the market leader in PEEK, a high-performance polymer used as a lightweight alternative to metal in sectors including aerospace, electronics, energy and medical devices.
Its financial performance was strong between 2003 and 2018, with adjusted operating profit increasing more than fivefold to around £127 million.
Since then, however, revenue has fallen and gross margins have contracted to 45.3% from much higher levels, hit by increased Chinese competition, weakness in spinal implants, operational challenges and losses at its manufacturing facility in China.
Stifel said Routh, who joined from AB Dynamics in January, has moved quickly to address those issues. A profit improvement plan is targeting more than £10 million of savings in the 2027 financial year through lower overheads, operational efficiencies and a simplified product range.
Investors are also looking ahead to a capital markets day in September, when Routh and co are expected to outline a broader turnaround strategy, including plans for the China facility, capital allocation priorities and medium-term financial targets.
The broker argues the shares look inexpensive at around 13 times forward earnings, a discount to their five-year average valuation, despite a strong balance sheet and the prospect of improving profitability.
