Broker snap: UBS initiates Elementis coverage with 'buy'

6th Jun 2011 11:47

UBS has initiated coverage on speciality chemicals supplier Elementis with a 'buy' and target price of 185p, and anticipates further upside in the future."Elementis has been successfully repositioned over the past few years and the shares have performed strongly as a result," the Swiss investment bank said.The firm owns and operates the only high-grade hectorite (clay mineral) mine in the world, which UBS believes gives it a unique product offering.Additionally, the broker notes that it is the only global chromium chemicals producer with a manufacturing base in the US: "a defendable position due to high barriers to entry."Also, UBS expects further upside to come as Elementis is trading at around a 20% discount to its UK chemical peers, "which we believe is unreasonable," the broker said."We expect a re-rating to a 10% discount on comparable growth and profitability prospects."UBS has highlighted some steps that will bring this re-rating: "the move away from low-margin surfactants (and the resultant mix improvement), exposure to high-growth shale gas exploration (8% of revenues), the coatings industry recovery we expect in 2012 (45% of revenues) and the energy project investment in the US chromium assets (which should achieve circa $4m cost savings in 2011)."---BC