Covestro AG (1COV: GR) (OTC: COVTY) experienced a shift in stock rating as Citi downgraded the company from Buy to Neutral.
The adjustment comes in the wake of Covestro's recent investment agreement that supports a takeover by ADNOC at a price of €62.00 per share. This offer price is notably lower than Citi's estimated replacement value of over €90.00 per share for Covestro.
The investment agreement, which was signed on Tuesday, aligns with the price previously set for initiating concrete negotiations at the end of June.
Citi has also adjusted the price target for Covestro slightly upward, to €62.00 from the former target of €61.00. The financial institution highlighted that the agreement did not present any unexpected material surprises.
Citi's analysis indicates that the offer price is equivalent to approximately 6 times Covestro's historical average EBITDA of roughly €2.2 billion.
This is in contrast to the current EBITDA, which is marked at about €1.2 billion, suggesting a multiple of 13 times. Given these figures and the modest recovery, Citi anticipates that the majority of shareholders will be inclined to accept ADNOC's offer.
Moreover, Citi does not foresee any regulatory obstacles that might impede the completion of the deal. However, the expected closing of the transaction is projected for the second half of 2025.
In other recent news, Covestro AG has been the subject of significant developments, including a downgrade in its stock rating by both Kepler Cheuvreux and Jefferies and a substantial acquisition offer from the Abu Dhabi National Oil Company (ADNOC).
The latter proposes to purchase Covestro's equity at €62 per share, a price mirrored by both Kepler's and Jefferies' steady target for the company. The takeover proposal has received the backing of Covestro's board, suggesting a low probability of receiving a more competitive offer.
The acceptance period for the cash offer is expected to initiate within the next six weeks, with the deal's closing anticipated to occur in the second half of 2025. Post-transaction, Covestro plans to issue new shares equivalent to 10% of its current share capital to ADNOC.
ADNOC has committed to support Covestro's Sustainable Future strategy and to maintain Covestro's business operations and corporate governance until at least the end of 2028.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Covestro's financial situation and market performance. Despite Citi's downgrade, the company's stock has shown significant strength, with a 5.98% return over the last week and a 21.36% return over the past year. As of the latest data, Covestro is trading near its 52-week high, with its current price at 98.4% of that peak.
InvestingPro Tips highlight that while Covestro was not profitable over the last twelve months, analysts predict the company will be profitable this year. This aligns with Citi's observation of a modest recovery and could influence shareholders' decisions regarding ADNOC's offer.
The company's market capitalization stands at $12.12 billion, with a price-to-book ratio of 1.66. Covestro's revenue for the last twelve months was $15.12 billion, although it experienced a revenue decline of 12.03% during this period.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Covestro, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.