Analysts at Barclays put the boot into Victrex plc (LON:VCT on Friday, downgrading its rating for the mid-cap specialty chemicals firm to ‘underweight’ from ‘equal-weight’ as they are increasingly concerned about margins over the next two years.
In a note to clients, the UK bank’s analysts said: “There’s growing risk that volumes disappoint but the real challenge for margins could come in 2021 when we assume the full weight of fixed cost needs to be absorbed by fewer tons.”
READ: Victrex halves dividend as profits stumble as auto and electronics worsen
They added: “We’re also worried about the risk of production cuts in important commercial aerospace platforms and a slowdown in medical in Asia.”
The analysts said they with lower margins now likely, their 2021 earnings per share forecast (EPS) forecast is now 9% below consensus and implies minimal growth in the next two years.
They concluded: “Today’s 20x P/E is appropriate if EPS growth is accelerating, we think, but not if it’s decelerating, and the +40% valuation premium to other cyclical chemical companies is now close to peak.”
The analysts also cut their target price for the FTSE 250-listed stock to 1,870p from 1,940p, with Victrex shares down 4.7% to 2,014p in late morning trade on Friday.