Deutsche Bank raised its recommendation on ThyssenKrupp AG to "buy" from "hold" on Thursday and increased its price target from €11 to €14.50, citing what it sees as a favourable risk/reward after the German industrial group's shares underperformed peers. The stock had closed at €9.61 prior to the update, implying roughly 50% upside to the new base-case target and more than 100% upside in a blue-sky scenario flagged by the bank.
Analyst Bastian Synagowitz pointed to several factors that have weighed on ThyssenKrupp's share price in recent months. According to Synagowitz, the stock has been hit by geopolitical developments, operational setbacks and investor concerns that the proposed steel transaction with Jindal could fail to proceed. Those elements left the company trailing its industry peers.
Deutsche Bank quantified the underperformance in relative terms: ThyssenKrupp's shares have risen by about 17% over the past 12 months compared with approximately a 75% gain for steel peers. When the contribution from TKMS is excluded, the gap in performance widens to around 100%, the broker said.
"We believe this created an entry opportunity and see further possible catalysts ahead," Synagowitz said.
Synagowitz also addressed market perceptions around the prospective sale of the TK Steel unit, noting that negative press coverage may have led investors to largely write off that transaction. He added that prospects for the steel business have materially improved due to proposed EU trade protection measures and an ongoing large-scale restructuring programme.
"Although negative press articles mean the sale of TK Steel has been likely written off by the market, prospects for the business have significantly improved on the back of EU trade protection plans as well as the ongoing large scale restructuring program," Synagowitz added.
Deutsche Bank cautioned that ThyssenKrupp remains a name where investors must accept volatility. The broker stressed that management needs to remain focused to deliver a meaningful uplift in underlying performance, while observing that current restructuring initiatives point toward that work being under way.
The upgrade reflects the broker's view that, at prevailing share levels, the balance between potential gains and risks has shifted to the investor's favour, even as short-term swings in the stock are likely to persist.
Sectors impacted: Steel, industrials, equity markets, corporate banking and advisory.