(News Bulletin 247) – The title of the cable specialist fell by more than 10% on Wednesday. The American bank lowered its recommendation to “underperformance” on the title, against “neutral” previously.
Difficult session for Nexans. The cable maker closed 10.4% lower on Wednesday, posting the third largest decline in the SBF 120 index.
The value was downgraded by Bank of America from “neutral” to “underperforming”. The American bank also cut its price target to bring it down from 106 euros to 82 euros, and lowered its EBITDA forecasts (gross operating income) by 21% for 2023 and 2024.
Noting that the value recorded an outperformance of 30% compared to the pan-European Stoxx Europe 600 index, the research office judges that the catalysts on the action have “now dissipated”.
“Pure player” of electrification
“We believe that Nexans’ ambition to become a ‘pure-player’ in electrification is attractive, even if the execution schedule has been lengthened by external factors (presence of the automotive harness business in Ukraine/impairment market)”, considers Bank of America. “The exhibition [du groupe] to the structural growth of offshore wind is also well understood [par le marché, NDLR]“as well as the dynamism of calls for tenders in high voltage, adds the bank.
While these assets are well integrated by investors, Bank of America estimates that at the same time part of the group’s activity (cables for automotive harnesses and low voltage cables), representing 50% of revenues, are exposed to a potential slowdown in the economy.
“We think the stretched valuation is hard to justify,” the bank concludes. Despite Wednesday’s fall, Nexans only saw its share price fall by 0.3% over the whole of 2022. Over three years, its share price has more than doubled, with an increase of 130%.
The cable manufacturer presented a new strategic plan last year which should lead it to become a “pure player” in electrification by extending the scope of its activities in this field, which will represent between 5.5 billion and 6 .5 billion euros in revenue in 2024.
To carry out this transformation, Nexans will rotate assets through disposals and acquisitions. This plan should enable the group to generate an EBITDA margin (gross operating surplus) of between 10% and 12% in 2024, compared to 7.6% in 2021.