Investing.com -- Shares of Syensqo SA slipped on Thursday following a downgrade by Morgan Stanley (NYSE:MS). The brokerage has revised its rating for Syensqo to "underweight" from "overweight,” citing several emerging concerns.
At 6:03 am (1003 GMT), Syensqo was trading 2.1% lower at €71.95.
The Belgian multinational materials company had reported net pricing gains of €475 million from 2020 to 2023. However, recent data shows a concerning shift, with €115 million in net pricing returned over the past four quarters.
This decrease in net pricing has raised concerns about the company’s current pricing power. “We judge that net pricing will need to stabilize before investors will warm to the name,” said analysts from Morgan Stanley.
In addition to pricing issues, Morgan Stanley has flagged the ongoing transformation of Syensqo. The company is actively working to unlock value from underperforming segments and explore growth through mergers and acquisitions (M&A).
While lower capital expenditure (capex) provides Syensqo with the opportunity to seek synergistic growth, the risks and rewards associated with potential M&A activities are currently viewed as balanced.
High-growth businesses, which Syensqo may target, come with higher valuation multiples, and investors are expected to adopt a cautious stance until clearer strategies and initial M&A moves are observed.
The value potential for Syensqo remains high, as per Morgan Stanley's sum-of-the-parts (SoTP) analysis, which suggests a bull case valuation reaching €105 per share. This valuation reflects the company's broad portfolio of specialty polymers and its strong market position.
Despite this potential, analysts stress that the market has yet to fully validate this value. To realize this potential, Syensqo must address its pricing challenges and demonstrate effective execution in its transformation and growth strategies.
Another area of concern highlighted by Morgan Stanley is the uncertainty in the aerospace sector. Ongoing industry production issues could negatively impact Syensqo's prospects for 2025.
“Our Syensqo Composite (Aerospace) Value Indicator highlights that there will likely be a -5% slowdown in '24. This is in contrast to the 15% sales growth delivered in 1H24,” the analysts said.
These aerospace production issues could affect Syensqo's performance and investor sentiment, making it crucial for the company to navigate these challenges effectively.
Morgan Stanley has also revised its earnings outlook for Syensqo, forecasting a 3% EBITDA growth for 2025, which is below the consensus estimate of 8%. This revised outlook reflects a more cautious view of the company's long-term growth prospects.
While Syensqo's bull case valuation reaches €105 per share, a more conservative target of €51 per share is also considered, particularly if growth fails to meet expectations and competitive pressures increase.