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Elementis comes up short

Elementis posts lower sales and profits as the US rig count reaches its lowest level in over a decade
July 29, 2015

Reduced drilling activity in the oilfield sector and the economic slowdown in China combined to halt five years of earnings growth at Elementis (ELM).

IC TIP: Hold at 250p

Demand was mainly steady for the chemical company's core product range, thanks to surging appetite for cheaper decorative coatings in the US and a weaker euro stimulating trading on the continent. But constant currency sales slid 3 per cent at its speciality products unit, due to customer destocking in China and a 42 per cent fall in oilfield drilling volumes.

These factors had a mixed effect on operating margins, which remained at 19 per cent in spite of falling volumes. Whereas waning demand in China hit the group's higher-margin applications, Elementis reported that reduced spending in oil markets affected more lower-margin product sales. Margins were also boosted by cost savings, lower raw material costs and a favourable outcome to a legacy legal case in Elementis's Chromium business.

What's more, cash balances rose more than threefold to $16.1m (£10.3m). That was helped by lower pension deficit obligations, following a chunky one-off payment of $15.2m last year.

Broker N+1 Singer expects adjusted EPS of 21.7¢ for the full year, rising to 22.7¢ in 2016 (from 24.8¢ in 2014).

ELEMENTIS (ELM)
ORD PRICE:250pMARKET VALUE:£1.2bn
TOUCH:249.5-250p12-MONTH HIGH:319pLOW: 222p
DIVIDEND YIELD:2.2%PE RATIO:11
NET ASSET VALUE:143¢*NET CASH:$16.1m

Half-year to 30 JuneTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
201440072.412.82.70
201536065.311.32.70
% change-10-10-12 -

Ex-div: 10 Sep

Payment: 2 Oct

*Includes intangible assets of $370m, or 80¢ a share £1=$1.56