Citi has downgraded Morgan Advanced Materials to 'neutral' and raised its price target from 235p to 290p, concluding that a strong recent rally has largely removed the valuation case for owning the shares.
The US bank said Morgan Advanced, which makes specialist ceramic and carbon materials for industrial applications, had risen 28% over the past three months, leaving the stock trading at around 9.5 times its 2027 enterprise value to operating profit estimate.
At that level, Citi said the shares were no longer obviously cheap for a company whose organic revenue growth remained relatively slow compared with peers.
It expects Morgan Advanced to report limited organic growth when it publishes a third-quarter trading update in early November, which it said offered little near-term catalyst to drive the shares higher from current levels.
Citi also assessed the potential upside from a disposal of Morgan's Thermal Products division, which makes high-temperature insulation materials, but concluded the benefit was limited, estimating such a sale could add only around 20p per share to a sum-of-the-parts valuation of approximately 310p.
With the revised target of 290p sitting close to the current share price, the broker said the stock was at broadly fair value and that more compelling entry points were likely to emerge.
Morgan Advanced Materials is due to report its third-quarter interim management statement in early November.
