A sharp downgrade from Erste frightened Cognor investors for only a few hours. On Tuesday morning, shares in the Polish steelmaker fell more than 6% after analyst Jakub Szkopek cut his recommendation from “hold” to “sell” and reduced the target price from PLN 5.03 to PLN 3.60. As the session progressed, however, the picture changed. The stock recovered its early losses and moved into positive territory. At least for now, the market is not fully buying into the analyst’s highly pessimistic scenario.
The start of the session suggested the recommendation could weigh heavily on Cognor. At PLN 5.53, the shares were down 6.36% from Monday’s close of PLN 5.90.
The trigger was an Erste report. Jakub Szkopek changed his recommendation on Cognor from “hold” to “sell” while cutting the target price from PLN 5.03 to just PLN 3.60. The new valuation was almost 40% below the price at which Cognor ended Monday’s session.
Down more than 6% first, then a recovery
Investors’ initial reaction was clear. Cognor was among the weaker stocks in Tuesday trading, with the negative recommendation cited as the direct reason for the decline.
The situation then began to change quickly. Buyers used the sell-off as an opportunity and the stock gradually recovered. Moving from a decline of more than 6% to a positive daily change amounted to a swing of roughly 7% from the morning low.
This is notable because the market had received a very strong negative signal. Erste’s target price of PLN 3.60 still implies significant downside even after taking the early sell-off into account. Investors, however, were not willing to price in that scenario immediately.
Erste sees Cognor at PLN 3.60
The change in recommendation is substantial. Erste’s analyst not only moved from a neutral “hold” to a negative “sell” but also lowered the valuation by more than 28%, from PLN 5.03 to PLN 3.60.
The gap between the new target price and Monday’s market close of PLN 5.90 was even larger. If the share price were to fall to Erste’s target, that would imply a decline of about 39% from Monday’s closing level.
Tuesday’s market action moved in the opposite direction. After the first wave of selling, demand returned and began rebuilding the share price.
Cognor remains one of the more volatile stocks
High volatility is not new for Cognor. On 31 August, the shares fell 11.67% in a single session, from PLN 6.51 to PLN 5.75. A day earlier the stock had traded above PLN 6.50, while on 7 September it closed at PLN 5.90.
Several opposing factors are influencing the stock. On one side, investors are watching the condition of the European steel industry and the group’s financial performance. On the other, Cognor benefits from interest in companies that could take part in higher defence-related spending. In recent months, this second theme has repeatedly boosted investor attention toward the company.
The market sends its own signal
One trading session does not determine whether the analyst is right over the longer term. A target price applies to a much longer horizon than a few hours of trading.
Still, Tuesday’s price action is interesting because of the scale of the downgrade. The market received a valuation implying almost 40% downside, reacted with a sharp sell-off at the open, and then began to recover virtually all of it.
For now, investors are showing they are not ready to price in a scenario in which Cognor shares move toward PLN 3.60.
Sources: Erste, Warsaw Stock Exchange, Puls Biznesu.
This material is for informational purposes only and does not constitute investment advice or a recommendation.
Source article: ManagerPlus.pl
