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On Thursday, HSBC analyst Christoph Dolleschal revised his stance on Rational (LON:0FRJ) AG (RAA:GR), elevating the stock rating from Reduce to Hold, albeit with a reduced price target of EUR750.00, down from EUR760.00. Dolleschal provided a detailed rationale behind the upgrade, noting the consistency in the company’s financial performance and the influence of geographical markets on its growth prospects.
Rational AG, known for its stability in key financial metrics, has maintained an EBIT margin around 26% and a tax rate near 25%, with capital expenditures representing approximately 2.5% of sales for the past 15 years. The analyst pointed out that the company’s growth composition is heavily reliant on the performance in the US and Asia. With Europe, including Germany which accounts for roughly 60% of sales, growing at a slower pace of around 5% per annum, the international markets are expected to compensate with a growth rate between 10-15% to achieve the group’s target.
Rational AG’s management has set a mid-term growth goal of 8-9% along with an EBIT margin of 25-26%. Dolleschal’s upgrade to a Hold rating is based on two key observations: firstly, the recent drop in Rational AG’s share price has aligned the market’s growth expectations with more realistic levels while acknowledging the quality and resilience of the business. Secondly, the current share price is now believed to reflect the risks associated with US tariffs.
The analyst’s commentary underscores the belief that Rational AG’s valuation is closely tied to its top-line growth, which remains the primary focus for investors considering the stability of other valuation metrics. With the adjustment in the price target and the upgrade in stock rating, HSBC suggests that the market may have appropriately adjusted for the risks and growth expectations associated with Rational AG.
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