Base-material Boom

Plastics maker Covestro delights investors

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Takes a licking and keeps on ticking over. Source: Covestro

Stock in German plastics maker Covestro, a unit of drugs group Bayer, are powering ahead, reaching €85 ($100) on Monday and up 250 percent from the fall of 2015, when it was spun off as a separate company. Its earnings have risen steadily from quarter to quarter, and the stock has surged more than one third just this year alone.

The company, which makes base materials for products ranging from paints to mattresses and CDs to building facades, has attracted legions of fans. Laurence Alexander, an analyst at US investment bank Jefferies, lists Covestro as one of his favorites. Christian Faitz of investment firm Kepler-Cheuvreux included the company in his most preferred chemical stocks, alongside specialty chemicals firm Lanxess. Predicting that the stock will chalk up new records, both analysts have raised their price targets to €113 and €112 respectively. Around 50 percent of analysts have a buy recommendation on the stock, according to Bloomberg.

The company, listed in Germany’s MDAX index of 50 top non-tech stocks that rank below the DAX of 30 blue-chip stocks, is enjoying a dream pairing of brisk demand and a limited supply from rival companies. As a result, Covestro’s profit margins are on the increase.

Bayer, which has its hands full raising finance to fund its $66 billion takeover of US seeds giant Monsanto, has been cashing in on the gains. It gradually reduced its stake to 24.6 percent in four transactions this year, most recently at the end of September. That’s down from 60 percent in 2015, after it took its former MaterialScience division public under the Covestro name.

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