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 in the UK could therefore be comfortably managed by most. Given that some commentators are now also worried about a destabilising effect on the rest of the EU, which could trigger euro weakness, it may make sense to favour those companies with a more balanced international footprint. We therefore highlight Elementis positively, given its high percentage of US sales, but would apply more caution to Synthomer, which has the most European exposure (c.80% of profits last year). Balance sheets are robust and dividend yields high, particularly Elementis and Victrex, which have ongoing special dividend programmes.
Companies: VCT ELM SYNT CRDA
Our recent sector report (18th April) highlighted multiple headwinds facing the sector in H116: 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 expect this to be a positive year for the UK sector, a view reinforced by recent commentary from all the stocks under our coverage. Our BUY ratings are Croda, Victrex and Zotefoams and we are positive on both Elementis and Scapa (both Corporate).
Companies: VCT ZTF ELM SCPA CRDA
Croda’s Q1 update reaffirms full year profit expectations as continued margin enhancement and mix offsets somewhat sluggish underlying sales trends. Reported sales increased by 7.7% (+9.8% in the three core sectors) and by 0.4% on an underlying basis. Profit growth in Q1 was achieved through a good performance in consumer markets and innovation driving margins (New and Protected Products +8.0%). Operating margins increased by 60 basis points. Despite pockets of good growth (Asia, Europe, NPP), underlying sales trends have been held back by North America, where export customers have been impacted by the stronger dollar, and Latin America, given challenges in that region. Despite this, we continue to expect a year of good progress and remain at BUY. NB shares remain cum-div the 100p special.
Companies: Croda International
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 sanitisers in food retail (eg used in 560 M&S stores), food production and hospital healthcare (in trial with NHS/ISS) - all areas with clear regulatory drivers and high profile problems like MRSA. Key initiatives which could transform the group include: seeking US EPA registration for surface care and a marketing/development agreement with Solvay. In the B2C market, Byotrol has a number of existing products.
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: AMO 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 significant currency tailwind is developing for sterling reporters. This may be short-lived but it is not yet fully factored into forecasts. At an individual company level, 2016 should provide initial answers to some intriguing questions: Will Victrex see off the competitive threat from Solvay? How will Paul Waterman refine and reinvigorate Elementis’ strategy? How great are Calum MacLean’s ambitions for Synthomer? Our BUY recommendations are Croda, Victrex and Zotefoams and we are positive on both Elementis and Scapa (both Corporate).
Companies: AGM ELM SCPA SYNT VCT ZTF BYOT PIM SYN ITX VRS CRDA
Croda is a company of the highest quality and in our view fully merits its premium rating. 2015 was a return to form with good growth in sales and PBT (constant currency PBT +8.8%) after two somewhat disappointing years. This was driven by an excellent contribution from Omega 3 and New and Protected Products more generally. NPP sales now account for 26% of Group, underpinning ongoing margin development. The 100p special dividend was the icing on the cake and the shares are still cum-div.
Augean (AUG LN) Site purchase to support ANSS contract | Croda International (CRDA LN) Impressive FY results, 100p special dividend confirmed | Dotdigital Group (DOTD LN) Matching ambition with delivery | Genus (GNS LN) H1’s: strong PIC performance but ABS impacted by weak dairy trends | Oxford BioMedica (OXB LN) Proposed £8.1m placing provides cash resources into H2 2016 | Spectris (SXS LN) Bolt-on acquisition of CAS Clean Air Service
Companies: AUG DOTD GNS SXS OXB CRDA
Croda has confirmed a good year of progress in 2015, a fraction ahead of our expectations. All key metrics show growth (CC sales +4.2%, PBT +8.8%), an impressive results in a challenging and unpredictable market environment. The main news in the statement is confirmation of a 100p special dividend (3.6% yield in isolation), reflecting the strength of the balance sheet and cash generative nature of the Group. Growth continues to be driven by innovation (New and Patent Protected Product sales growing at 4x underlying sales) and investment (£200m invested in organic and inorganic growth opportunities). Croda is a company of the highest quality and in our view fully deserving of its sector leading rating.
A solid Q3 update confirms modest sales growth in Q3 (+2.3%), driven by another strong performance from the Consumer sectors and from Life Sciences in particular (+7.3%) on the back of the pharma grade Omega 3 API launch in the US. Q3 margins were ahead of the prior year with growth of New and Protected Products (NPP) well ahead of overall sales. Full year expectations are reiterated on a constant currency basis, implying a modest currency related downgrade to forecasts.
Croda's interims strike a confident tone confirming a continued improvement in underlying sales, strong margins and 7% PBT growth. This was underpinned by record sales of New and Protected products. Life Sciences is again the stand out performer, reporting 15% revenue growth on the back of the Omega 3 product launch. Encouragingly, Q2 sales were ahead of Q1. Full year expectations are reiterated, despite tougher comps from H2. We expect to retain our forecasts. Croda is a Group of the highest quality. Our Hold recommendation reflects a full valuation (c.14x EV/EBITDA), which is in takeover territory.
AMINO TECHNOLOGIES (AMO LN) Strong interims and transformative acquisition | AUGEAN (AUG LN) Strong H1 performance, in line with expectations | CARADOR INCOME FUND PLC (CIFU LN) NAV -0.4% in June, 2.5c dividend declared as expected | CELLO GROUP (CLL LN) On track | CRODA INTERNATIONAL PLC (CRDA LN) Confident interims confirm on track for a return to growth | MOBILE STREAMS (MOS LN) FY’15 profits and cash in-line | RENOLD (RNO LN) Q1 trading a little disappointing | SCAPA GROUP PLC (SCPA LN) Trading in line; Swiss facility to close | VICTREX (VCT LN) Solid performance despite Invibio underperformance, small acquisition
Companies: AMO AUG CLL MOS RNO SCPA VCT CRDA CIFU
Research Tree provides access to ongoing research coverage, media content and regulatory news on Croda International.
We currently have 31 research reports from 3
A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
Companies: AGY ARBB ARIX BUR CMH CLIG DNL HAYD NSF PCA PIN PXC PHP RE/ RECI SCE SHED VTA
Whether we know it or not, advanced materials are a core component in the everyday life of the everyday person. They are the key material in items we often disregard, such as printer inks and lotions, to objects which defy the laws of gravity like the Airbus A380 and London’s Shard. Furthermore, these materials are not only essential to many objects and structures, but, due to their superior qualities, are the key to the advancement of many industries. One such example is the use of carbon fibre which offers five to ten times more rigidness, stiffness, and strength than its aluminium counterpart. As a result of these impressive qualities, motorsport and athletics have improved ten-fold since their mainstream use and new records are broken every year.
Companies: AGM AUTG BIOM BOY CAR CKT EMH EXO GRPH HAYD IKA ITX CRPR MGAM NANO OXIG SYN SCE SYM VCT ZEN HDD
Following our headline ’Settled!?’ on 25/06/2020, our new headline looks a bit revanchist as we had expected that Bayer ‘just’ wanted to manage expectations by pointing to the fact the mechanism has to be approved by the judge. The judge’s doubts on the planned mechanism for the glyphosate-related cases might sweep current management away. Or the company gets a different name.
Cronin gives exposure to the commercial opportunities from the digitization of chemistry in discovery & manufacture, streamlining chemical processes, expediting compound development and optimising molecular design. It serves the pharmaceutical, academic & chemical research sectors. Its first product is DigitalGlassware™, with scope to develop an autonomous synthesis engine, Chemputer™. Cronin has a sound balance sheet with cash of £3.27m at FY2017 and made a loss of £1.58m. We initiate with a Buy and a target price of 4.75p
We’re just over three months in to 2019 and we’ve seen a 10% UK market rally, retracing much of the Q4 decline, such is the nature of fickle market sentiment. That said, many of the issues we wrote about three months ago that were impacting markets remain: notably Brexit, trade wars, geopolitics and global monetary policy. The 2019 rally thus far feels somewhat fragile, with competing forces of optimism on a potential trade deal which could underpin the rally, against the deterioration in underlying economic data that could ultimately undermine the recent market gains. In this context, we look at what the lead indicators and the market are telling us about the industrial cycle and the stocks most exposed to various industrial trends. The Q4 derating in short cycle industrials and autos had been vicious and while these sectors have seen a more solid footing in 2019, with earnings downgrades being priced in, it will likely take a trough in lead indicators before short cycle stocks can start to perform again and re-rate relative to the market.
Companies: ARS CYAN HYR LIT SOM ABBY AMS AMER ANX ATYM AVON BLVN PIER BUR CGS CAML CALL CSRT TIDE DTG DEMG EMR FPO FST GTLY GENL INCE GRI GEEC HDY HMI HAYD HEAD HILS HTG HUR IBPO INDI JHD JOG KEYS KCT KGH LAM LOK MACF MNO MANO MOD MKLW OXIG PCA PANR APP PXC PHC PMO RBW RMM REDD RSW RNO RKH RBGP ROR SUS SCPA SHG SOLG TRAK TRI VNET VTC ZOO ZTF
Airbus secures €15bn credit facility but partially restarts production in France & Spain, Cummins suspends production and FY20 guidance as customers shutdown
Companies: CGS HAYD HEAD HTG OXIG RSW RNO ROR TWD TRI ZTF GHH
Japanese PMI falls to lowest level since 2009, GE Aviation cuts 10% of workforce, Kone downgrades 2020 outlook
Companies: CGS HAYD HEAD HILS JHD OXIG RSW RNO TWD ZTF SOM GHH
US & German manufacturing PMI hits lowest readings since 2009, UK manufacturing PMI heads below 50, BorgWarner expects material financial impact from customer production halts
Companies: AVON CGS HAYD HEAD HILS JHD RNO SCPA TWD TRI ZTF SOM GHH
In October 2019 Applied Graphene’s (AGM’s) management announced it was re-aligning resources around dispersion and application technology to better support product development with customers presenting the nearest-term revenue opportunities. This focus supported six customer launches of coating products containing AGM’s graphene dispersion during calendar year 2019. These launches are for both mass-market and specialist applications. As a result of the ensuing uptick in product sales, revenues so far for FY20 are already 20% higher than the whole of FY19.
Companies: Applied Graphene Materials
COVID-19 update – continuing to operate, div. suspended
Companies: Scapa Group
Adrian Potts, the CEO of Applied Graphene Materials (AGM), discusses the company’s commercial progress over the course of the past 12 months, which saw the launch of a number of coatings products based on AGM’s graphene dispersions. These products include industrial anti-corrosion products from Blocksil and Alltimes Coatings and retail products from Halfords and Hycote. He also highlights the progress made in the composite and functional materials markets and why initiatives to develop water-based dispersions are key to enlarging the addressable market. Finally, he explains how management has strengthened its routes to market and the actions the company has taken to mitigate the impact of COVID-19.
Applied Graphene Materials is a leading innovator in the manufacture and application of graphene. The company has developed a proprietary ‘bottom-up’ process for the production of high specification graphene and owns the intellectual property and know-how behind this process. The company’s immediate commercial focus is on the coatings market, where products based on AGM’s graphene dispersions can provide demonstrably improved corrosion protection versus incumbent technologies.
Exclusive Masterbatch Distribution Agreement
Companies: Haydale Graphene Industries
Treatt has had another successful half year, and the COVID-19 pandemic has, to date, had no adverse effect on the business. As previously stated, the sharp fall in citrus prices during FY19 has continued into H120, hence H1 revenue is down 5.6% at constant currency. There was good growth in the other parts of the business, with tea and health & wellness as the standout performers. Building work on the new UK site has slowed due to the COVID-19 pandemic, and at this stage guidance is for relocation to be in 2021, ie a c three- to six-month delay vs previous guidance of Q420. Our forecasts and fair value remain unchanged at 530p.
Treatt demonstrated its strength and resilience in H120, as so far the COVID-19 pandemic has not had any adverse impact on trading performance. Of course, this is in part due to the categories in which Treatt operates, with some of its products being used in household cleaners, which have witnessed a global spike in demand. Nevertheless, the steady performance is testament to the management and culture of the business, which have been able to withstand the unexpected and exogenous shock. H219 and H120 were affected by a global weakness in citrus raw material prices, which in turn affected revenue growth. Citrus prices have now started to firm and we expect growth in this category to return in H2. We leave our forecasts mostly unchanged but roll forward our DCF and hence our fair value rises to 560p (from 530p previously).
Against a backdrop of generally negative company announcements, Hardide bucked the trend by releasing solid interim results for the 6 months ended March 2020, noting limited impact to date from COVID-19 and a positive trading outlook. Furthermore, the allimportant move to new facilities and corresponding capacity expansion is both on track and on budget. Several of Hardide’s end markets will clearly be feeling the impact of COVID-19. However, we feel the importance of Hardide’s technology to its customers by extending the useful life of components and its diversity of end markets across multiple sectors including oil & gas, aerospace, flow control, power generation and precision engineering is enabling it to weather the storm. We leave our forecasts unchanged and see potential for an upgrade should end markets maintain strength and H2 margins match those of H1.