On Friday, Kepler Cheuvreux analysts adjusted their stance on Umicore SA (UMI:BB) (OTC: OTC:UMICY), downgrading the stock from "Buy" to "Hold" and slashing the price target significantly to EUR 10.50 from the previous EUR 18.00. The revision followed a reassessment of the company's performance and prospects, particularly focusing on its Battery Materials (BM) division. The stock currently trades at $2.57, near its 52-week low of $2.44, having fallen 53% over the past year. According to InvestingPro analysis, the company is currently undervalued based on its Fair Value assessment.
The analysts cited Umicore (EBR:UMI)'s ten-year annual Total (EPA:TTEF) Shareholder Return (TSR) of -4%, indicating a track record that has been impacted by challenges within its BM business. While currently unprofitable with weak gross margins of 8.4%, InvestingPro data shows analysts expect the company to return to profitability this year. They noted that an upcoming Capital Markets Day in March is expected to shed light on the company's strategic direction and growth potential. However, the analysts expressed skepticism about the event's capacity to reassure investors regarding Umicore's return objectives.
For the BM sector, Kepler Cheuvreux sees a low probability of significant strategic shifts, projecting a 5% Return on Capital Employed (ROCE) by 2030. The firm's overall outlook for Umicore suggests limited mid-term earnings growth, with an anticipated 2024-2026 adjusted EBITDA Compound Annual Growth Rate (CAGR) of 1%, aligning with the consensus view.
The analysts' decision to downgrade Umicore's stock rating was also influenced by the substantial 60% decline in share price throughout 2024, which they believe is now reflected in the stock's valuation. The new price target of EUR 10.50 is based on an estimated 6x 2025 Enterprise Value to EBITDA (EV/EBITDA) ratio, close to its current EV/EBITDA of 5.8x. Despite challenges, the company maintains its 27-year track record of consecutive dividend payments, currently yielding 2.7%. Kepler Cheuvreux indicated that they might consider a further downgrade if Umicore's capital expenditures exceed expectations or would contemplate an upgrade if the company experiences a material acceleration in growth.
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