Kepler Cheuvreux has initiated coverage of London-listed Elementis with a "buy" rating and a target price of 205 pence, which represents an implied upside of 30.6% from the current quoted level of 157 pence.
In its initiation note, the broker said the market still appears to underweight the changes the group has made recently. Kepler highlighted that, despite trading in line with generalist chemical peers, Elementis now posts operational metrics that more closely resemble top-tier specialty chemicals companies - including a return on capital employed (ROCE) of around 30%.
Kepler added that additional proof of the company's strategic shift - manifested as robust financial results - should prompt a re-rating of the stock. The broker identified Elementis's forthcoming first-half results, scheduled for release on July 30, as the next near-term catalyst that could confirm the firm's transformation to investors.
The initiation follows two notable portfolio and capital-allocation moves by Elementis. On June 2 the company completed the sale of its pharmaceutical manufacturing business to Associated British Foods at an enterprise value of €34.3 million, generating net cash proceeds of approximately €30 million. Elementis described the transaction as one that "further strengthens the quality of our portfolio and sharpens our focus on our core markets," and said the deal repositions the group as a pure-play specialty chemicals company.
One day later, on June 3, the board announced a share buyback programme to acquire up to roughly a325 million of ordinary shares through to February 28, 2027. Rothschild & Co Global Markets Solutions Limited was appointed to manage the programme, which the company frames as an action to reduce share capital.
The combination of portfolio simplification, cash generation from the disposal and the announced buyback are the factors Kepler points to in arguing for a valuation gap versus specialty peers. The broker's view is that demonstrable delivery in upcoming reported results would be the likely trigger for market recognition of that improved positioning.
Context and next steps
Investors will be watching the July 30 first-half results for confirmation that the structural changes and capital returns are translating into the financial performance Kepler expects. Until then, the broker's initiation establishes a target and a rationale rather than presenting new operational data beyond what Elementis has already announced.