Vallourec: UBS upgrades to buy

(CercleFinance.com) - UBS is now more positive about the French specialist in tubes for the energy industry, Vallourec, having upgraded its rating on the stock to “buy,” vs.
"neutral" previously.

Alongside this upgrade, the broker has raised its target price from 5 euros to 7 euros.

The broker's analysts give several arguments for this upgrade. First, UBS believes that investors are underestimating Vallourec's medium-term operating leverage, it says in a report. And this is while the market for oil tubes seems to have bottomed out worldwide, and remains upbeat in the US, with the local boom of “unconventional” oils.

In addition, the stock's valuation is considered as "cheap" in view of the outlook for a recovery in EBITDA, which is currently (in standardised terms) 40% lower than it was in previous cycles. This gives it upside potential of around 60% relative to historical averages.

Finally, the group now has a healthier balance sheet, and UBS has not ruled out that Vallourec will benefit from the customs duties on steel that Donald Trump is imposing in the US, or possibly that he sells Brazilian forest assets, which are a non-core activity.
UBS adds that by strictly following management's medium-term forecasts, which it takes with caution, the Vallourec share would be worth 14 euros.



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