On Thursday, Citigroup updated its stance on Dowlais Group PLC (DWL:LN), shifting from a "Sell" to a "Neutral" rating, while also reducing the price target to £0.58 from the previous £0.79. The move comes after a significant decline in the company's share price since its initial public offering (IPO).
The analyst from Citi noted that Dowlais Group has faced a series of challenges that have impacted its financial performance. Delays in the Battery Electric Vehicle (BEV) program, a downturn in global light vehicle production for the fiscal year 2024, and negative foreign exchange effects have all contributed to a reduction in the Group's EBIT margins, which fell below 6% in the first half of 2024. The company's guidance for the full year 2024 EBIT margin has been revised down to a range of 6.0-7.0%.
Despite these setbacks, there is an expectation that EBIT margins will stabilize in the fiscal year 2025 as the management team takes steps to mitigate losses. These measures include cost-cutting initiatives, reducing the impact of BEV program delays on ePowertrain losses, improving commercial recovery, and disposing of loss-making Hydrogen operations.
Additionally, the potential sale of Dowlais Group's Powder Metallurgy business, which generates over £1 billion in revenue, could significantly decrease the company's net debt, which currently stands at approximately €0.9 billion. The Citi analyst highlighted that after a 51% drop in the company's share value and based on a 4x consensus FY25E P/E, the upgrade to "Neutral" was warranted, with a revised price target set at 58p.
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