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Devro Falls 6.6% in Six Days on Raw Material Costs: London Mover

Feb. 25 (Bloomberg) -- Devro Plc fell 6.6 percent in six days, trailing a 0.9 percent gain in the FTSE 250 Index, on concern that earnings at Britain’s biggest maker of collagen sausage casings won’t improve much as raw material costs rise.

Devro, which is scheduled to report full-year earnings tomorrow, closed unchanged in London trading at 355 pence after declining as much as 0.8 percent in London trading today. The Chryston, Scotland-based company has a market value of 588 million pounds ($889 million) after the longest streak without a gain in three months.

“Input cost pressures are likely to offset the scope for its capital expenditure program to meaningfully improve its margin outlook for 2013,” Damian McNeela and Graham Jones, London-based analysts at Panmure Gordon & Co., wrote in a note on Feb. 19.

Devro said in October that currency movements, higher raw material costs and extended plant commissioning periods will mean “full-year operating profits are expected to be slightly below our original expectations.” The company said it expected raw material prices to continue rising, though a 35 million-pound investment program in 2012 would increase capacity and help boost productivity in 2013 and 2014.

“Devro’s shares look susceptible to short-term weakness,” the Panmure analysts said. The stock rose 23 percent from the start of the year through Feb. 15, when it closed at the highest price in more than 14 years.

Analysts are split on the stock, with Numis Securities saying Devro may fall 15 percent and Goldman Sachs predicting a gain of 32 percent from today’s price, according to data compiled by Bloomberg. Panmure has a 320-pence target.

The shares are trading at a premium to rival Viscofan SA, McNeela and Jones said in the note. “We believe that in the short term this premium is undeserved.”

Viscofan, based in Pamplona, Spain, said in October it expected to exceed its full-year profit target. The stock has fallen almost 6 percent this year.

To contact the reporter on this story: Colm Heatley in Belfast at cheatley@bloomberg.net

To contact the editor responsible for this story: Douglas Lytle at dlytle@bloomberg.net

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