On Wednesday, JPMorgan (NYSE:JPM) adjusted its stance on OCI NV (OCI:NA), downgrading the stock from Overweight to Neutral and reducing the price target from €30.00 to €26.00. The revision comes after OCI NV's recent announcement that it is contemplating mergers and acquisitions as part of its future strategy, a move that JPMorgan believes could hinder or delay the anticipated value unlock for shareholders.
The firm had previously upgraded OCI NV to Overweight in August, with the expectation that the proceeds from announced and potential future asset sales would be returned to investors by 2025. This return was seen as a significant opportunity to unlock the sum-of-the-parts (SOTP) value of the company. However, the latest strategy shift implies that the company may not fully realize this value as expected.
According to JPMorgan, the remaining business after the announced asset sales is OCI's European nitrogen business. This sector is considered less attractive due to structural cost challenges, primarily driven by higher energy prices in Europe. The analyst notes that these factors contribute to the less favorable outlook for the company.
The new price target of €26.00 represents a 15% discount to JPMorgan's SOTP valuation of €31.00 per share. This discount is reflective of the anticipated delays and potential prevention of the full SOTP value realization, due to the company's strategic pivot towards considering mergers and acquisitions.
The downgrade and price target adjustment by JPMorgan indicate a more conservative expectation for OCI NV's stock performance, as the company navigates its revised strategic direction.
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