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On Wednesday, Deutsche Bank (ETR:DBKGn) analyst David Brockton issued a downgrade for DCC Plc. (DCC:LN) (OTC:DCCPF), changing the stock rating from Buy to Hold and adjusting the price target to £55.00 from the previous £60.00. The revision was primarily attributed to the increasing uncertainty around tariffs, especially concerning the company’s Technology division.
Brockton’s analysis pointed out that while DCC’s Energy segment, which accounts for approximately 85% of the company’s continuing profits, is relatively defensive, it is not immune to external pressures. The Energy division’s strategy of cash-generative reinvestment is expected to support its growth despite these challenges. However, the analyst noted potential risks associated with weaker commodity prices, which could lead to reduced average selling prices and organic growth for the Energy business.
Additionally, the report mentioned the possibility of China’s counter tariffs affecting US LPG exports, which account for about 30% of the exports. This situation could compel producers to sell at lower prices. Despite these concerns, the essential nature of DCC’s Energy services and the current global outlook suggest that volume risk remains low. Brockton recalled that during the Global Financial Crisis, organic volumes fell by 10% over two years, which was somewhat counterbalanced by acquisitions.
The downgrade reflects a cautious stance on DCC’s near-term prospects, given the current tariff uncertainties. The Technology business, in particular, is highlighted as a primary area of concern, which could be impacted by the ongoing trade tensions. Brockton’s commentary underscores the complexity of the global trade environment and its potential repercussions on specific sectors of DCC’s operations.
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