Citi analyst Sebastian Satz downgraded the rating on Covestro (0RBE – Research Report) to a Hold today, setting a price target of €62.00.
Sebastian Satz has given his Hold rating due to a combination of factors surrounding Covestro’s recent investment agreement. The agreed-upon takeover price of €62 per share by ADNOC is significantly lower than the estimated replacement value of over €90 per share. This offer price reflects a multiple of 6x Covestro’s historical average EBITDA, which is approximately €2.2 billion. However, considering the current EBITDA is only about €1.2 billion, this translates into a 13x multiple. Given the moderate recovery and the lack of better alternatives, it is expected that most shareholders will find the offer appealing and are likely to accept it. Furthermore, no regulatory issues are anticipated that could potentially hinder the transaction, which is expected to close in the second half of 2025.
The present scenario suggests a 6% discount to the offer price, which does not justify a Buy rating, hence the downgrade to a Neutral rating. Looking ahead, ADNOC will release the offer document within the next six weeks and submit it for regulatory review, which will be followed by an acceptance period for shareholders. The minimum acceptance level for the deal to proceed is just over 50%, and there appears to be little risk of not meeting this threshold. Although the completion process is lengthier than initially assumed, no significant obstacles are foreseen. Therefore, the recommendation reflects the current offer’s adequacy and the expected timeline for deal closure.
According to TipRanks, Satz is ranked #1824 out of 9080 analysts.
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Covestro (0RBE) Company Description:
Covestro, formerly Bayer Material Science, was spun off from the Bayer Group in 2015. The firm is a market leader in polyurethanes and polycarbonates, products that the company discovered in the mid-20th century. It also has a sizable speciality chemicals business that is focused on coatings and adhesives. Demand for Covestro’s products is driven primarily by cyclical end markets, such as automotive, construction, and furniture.
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