ConvaTec Group PLC (LON:CTEC) has had its recommendation downgraded to ‘neutral’ from ‘buy’ and its price target cut by UBS over concerns about a slowing wound market and the limited progress being made in its ostomy turnaround.
Shares in the company have shed more than a third of their value this month after the medical products firm announced the resignation of chief executive Paul Moraviec and issued a profit warning after disappointing revenue in the third quarter.
READ: ConvaTec announces resignation of chief executive as it issues profit warning
“We are concerned that EBIT margins will continue to decline: investments are likely still required in internal controls, marketing and R&D as well as capex in our view,” UBS analysts - who cut the firm’s 12-month price target to 150p from 250p - wrote in a note to clients.
Analysts at the Swiss investment bank said they expect ConvaTec to deliver just 2% organic sales growth in all future periods and predict structural market share loss in the ostomy market. The Swiss bank also predicts that margins will decline a further 100bps before stabilizing at 22.5% from 2020.
“In our upside scenario we see fair value at £2.40 per share, but without a CEO and after high senior staff turnover since IPO it's hard to get comfort execution issues won't continue,” they added.
ConvaTec shares were 2.55% lower at 145.25p in mid-morning trade.