ConvaTec Group PLC (LSE:CTEC) may fall short of recently-lowered profit forecasts for 2022, reckons RBC Capital Markets, leading to the shares being downgraded.
"There are so many caveats to growth rates that we find them difficult to interpret," analysts at the bank said after looking back the interim results at the end of last month from the specialist in wound care, ostomy care, continence and infusion products.
In addition to substantial COVID-related effects, the analysts said there are "issues around tenders, portfolio rationalisation, regional differences, stocking/destocking, and lumpiness / order timing".
Going forward, some of these are expected to unwind but some will be accentuated.
The most bearish picture is in margins, as higher input costs and freight costs are not able to be passed on to customers in the near-term, "and it is not clear about the mid-term either".
Applying a 20 P/E multiple to 2023 forecast earnings results in a new 12-18-month target price of 213p and results in the downgrade to 'underperform' from 'sector perform'.
"While shares fell 13% in the two days following the results, moving into line with our price target, we do not think consensus reflects the continued investments being made by management. Net margin benefits of the transformation initiative remain opaque, notwithstanding management's view that the business could ultimately achieve a mid-20s operating margin."