In our second edition of “Trend spotting” we note how in the last three weeks the defensive rotation trend has gathered pace and further evidence has emerged of the “relative fading” in the UK economy. However we now see early signs of the “risk on” trend starting to reassert itself in equity markets and we look at small cap laggards plus European exposure as ways to play this.
Companies: GNS REDD SPH TRI XAR BOY VCT GHH CHH DPH INS HILS RPS LWB EKF UDG SYNT MYSL BCA JUP KMK
In the wake of the EU referendum result, our view of the UK chemicals sector remains relatively upbeat. The companies we cover (Croda, Elementis, Scapa, Synthomer, Victrex, Zotefoams) generally have limited domestic exposure and plenty to gain on transactional and/or translational FX exposure. The main beneficiary of FX is Victrex, where as a rule of thumb, we would expect a 10% sterling devaluation to increase Group PBT by 10%, all else being equal. An isolated period of disruption/ contraction
Companies: VCT ELM SYNT CRDA
Synthomer has released an in line trading update for Q1’16, confirming a positive start to the year. Europe and North America performed better than the strong Q1’15 (volumes down slightly but margins higher and helped by currency). Asia and Rest of World also traded ahead of the prior year. Overall, expectations are unchanged for the full year. An encouraging update.
Companies: Synthomer PLC
accesso Technology (ACSO LN) Consistent growth, increasing margins and few risks | Earthport (EPO LN) Solving a $9.3bn+ problem | Gresham Computing (GHT LN) Positive AGM statement | Howden Joinery Group (HWDN LN) Strong trading in recent 8 weeks. Low end f/casts to edge up | James Fisher & Sons (FSJ LN) Trading in line | NCC Group (NCC LN) Strong revenue growth, margins lower | Oxford BioMedica (OXB LN) Final results and portfolio review | Redde (REDD LN) Strong trading continues in H2 | Sepura
Companies: ACSO EPO GHT HWDN FSJ NCC SEPU SYNT VCT OXB REDD
Byotrol is an Aim-listed anti-microbial play which floated in 2005 and underwent reorganisation, including appointing experienced new management, in Q4 2013. We had an initial presentation from the company on its trading statement on 25th February and look forward to learning more. Byotrol’s USP is in developing and commercialising hygiene products with IP protection and superior characteristics, especially in terms of long-lasting action. Byotrol addresses the B2B market in areas like surface s
Companies: BYOT AGM ELM SCPA SYNT VCT ZTF PIM SYN ITX VRS CRDA
Amino Technologies (AMO LN) Contract extension with Vodafone Netherlands | Spirent Communications (SPT LN) Appointment of CFO | Zotefoams (ZTF LN) MuCell momentum building
Companies: AFRN AGM ELM SCPA SYNT VCT BYOT PIM SYN ITX VRS SPT ZTF CRDA
There are plenty of things to worry about at the start of 2016: a subdued and recently downgraded global growth outlook; oil price volatility and a still-falling rig count; the potential for a hard landing in China; the Brexit vote and its implications for sterling. Nevertheless, we think this should be a positive year for the UK chemicals sector. There is plenty of evidence that consumer-driven chemicals demand is picking up and, to a degree, offsetting weaker industrial demand. Meanwhile, a si
Companies: AGM ELM SCPA SYNT VCT ZTF BYOT PIM SYN ITX VRS CRDA
Since late 2014, the Synthomer story has been all about the potential transformation of the Group under new CEO Calum MacLean, particularly in anticipation of M&A. The first acquisition (Hexion Performance Adhesives & Coatings) was announced four weeks ago. It will be significantly earnings enhancing but is described as a stepping stone with more acquisitions to follow. Away from the M&A pipeline, there are a few headwinds for the current year, not least the prospect of competitive nitrile capac
Brady (BRY LN) Numbers in line, no changes to underlying forecasts | CVS Group (CVSG LN) H1-16 interims – continuing to exceed expectations | Earthport (EPO LN) Building for a bright future | Synthomer (SYNT LN) First acquisition under new management | Verona Pharma (VRP LN) 2015: a year of stellar data
Companies: BRY CVSG EPO SYNT VRNA
Synthomer has acquired HEXION Performance Adhesives & Coatings, executing its first material acquisition under the new management team. The total consideration is $226m, funded from cash and existing facilities. The EBITDA multiple is 7.5x (versus Synthomer's existing 10x rating) but only 5.4x post synergies, a modest multiple relative to recent sector M&A. In terms of scale, this adds 28% to existing Synthomer's existing revenue and 16% to EBITDA (it is lower margin than Synthomer pre synergies
Synthomer has reported a record performance for 2015, with PBT increasing by c.11% to £95.3m despite currency headwinds and a material increase in employee bonus payments. EPS of 21.5c was in line with consensus forecasts (21.5c) and 3% ahead of our 20.8c. This was driven by a very strong year in the Asia and Rest of World segment, where divisional operating profit rose by 127.5% to £40.5m. Operating profit in Europe and North America declined by 14.5% or 7.5% on a constant currency basis but wa
SPEEDY HIRE (SDY LN) Remedial actions underway; discount unwarranted | SYNTHOMER PLC (SYNT LN) FY15 outlook unchanged, slight dampening of FY16 expectations
Companies: Speedy Hire Plc (SDY:LON)Synthomer PLC (SYNT:LON)
Synthomer’s Q3 trading update confirms the full year outlook with recent trends continuing in both divisions. Overall, we consider this a positive update against a weaker macro and sector trading environment. Guidance of a consistent performance for both divisions in FY16 slightly dampens expectations in that year (consensus currently looking for 7% growth in PBT) with some caution expressed over the supply/demand balance for nitrile latex in H2’16 We remain at Hold with the current rating at 16
Hargreaves Services (HSP LN) Conditions still tough; balance sheet strong | Low & Bonar (LWB LN) Trading in line | Synthomer (SYNT LN) H1 trading in line, full valuation but with yield attractions
Companies: HSP LWB SYNT
Synthomer’s H1 update confirms that trading is in line with expectations at a Group level as strength in Asian nitrile (volumes and margins) has offset further weakness in Europe. Cash flow remains strong and net debt has further reduced at the half year stage, helped by Euro weakness. The scene is set for another special dividend, we believe, at the end of the current year, effectively paying shareholders to wait for new CEO to set out his strategic visions for the Group.
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