On Friday, Berenberg issued a new rating for OMV AG (OMV:AV) (OTC: OMVKY), downgrading the stock from Buy to Hold, while slightly increasing the price target to €49.00 from the previous €47.00. The adjustment follows a notable rise in the company's share value, which has seen an increase of over 18% this year. This uptick was supported by robust first-quarter results announced on April 30, 2024.
The firm noted that despite the stock's strong performance, it has now neared the set price target. Additionally, while OMV's dividend yield is currently appealing at 8.6% based on estimates, this figure is contingent on the continuation of special dividends that are currently being distributed from the proceeds of disposals. This dependency raises some concerns about the sustainability of high dividend yields.
Furthermore, the analysis highlighted that OMV's underlying free cash flow is weaker than some of its industry counterparts due to persistently low chemicals margins. This financial position could impact the company's ability to maintain its dividend payouts compared to its peers.
The stalled merger discussions between Borealis and Borouge were also mentioned as a factor in the downgrade, as it diminishes the prospects of a positive catalyst emerging from a potential agreement. Despite these concerns, the firm recognized that OMV's stock is not overly expensive, trading at a forward price-to-earnings ratio of 6.2 times for the year 2024.
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