Construction material company SigmaRoc (SRC) has seen its shares slide but Liberum says the market is ‘overestimating’ the impact of a downturn.
Analyst Charlie Campbell retained his ‘buy’ recommendation and target price of 130p on the stock, which closed down 0.4% at 47.4p on Monday.
He said first half results were ‘strong and in line with guidance’, with earnings up 6% despite ‘rapid raw material cost inflation and halts in some customer activity’.
‘We are confident [pre-tax profits] will grow in the second half, as demand holds up, the UPM strike (at a key customer in Finland) will not repeat, and acquisitions mature,’ said Campbell.
‘The shares are down 58% from 2021 highs, as the market overestimates the sensitivity of profits and cashflows in a potential downturn. We think a 35% fall in profits with a 10% free cashflow decline are serious downturn scenarios.’
He added that a joint venture with Arcelor Mittal is ‘another seal of approval in SigmaRoc’s technical and entrepreneurial abilities’.
‘We see over 100% upside to our unchanged target price,’ he said, meaning the shares could double.
Source: Citywire.co.uk