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Eurobank Equities upgrades Frigoglass to Buy

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The mgt is set on a number of initiatives, which are bound to improve financial performance of Frigoglass through sales growth and positive operating leverage, Eurobank Equities said in a report.

These strategic priorities include: (1) the turnaround of value dilutive investments in China, the US and Jebel Ali, (2) the mgt’s focus on cash flow generation rather than top-line growth, (3) aggressive inventory reduction targets and cost optimization and (4) an operational transformation that is expected to enhance product quality, reduce waste and improve margins.

According to the report ROIC bottomed out in 2012 and will improve materially over the next years (+800bps in 3 yrs) as the mgt’s strategic initiatives start delivering positive results, leading to volume growth and positive operating leverage, better working capital mgt, improved cash flow generation and deleveraging (net debt/ebitda from >3x to <2x).

Combining the above and following recent stock price underperformance Eurobank Equities upgrades the shares to Buy. The target price remains unchanged at EUR5.80 per share.
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