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Elementis grows earnings again

A fifth consecutive year of record earnings prompted yet another special dividend, but doubts remain over the oilfield drilling business
February 24, 2015

Against a mixed economic backdrop, speciality chemicals group Elementis (ELM) delivered its fifth consecutive year of record earnings and yet another bumper special dividend. Once again it was the speciality products division that brought home the cash, thanks to its low capital intensity and new products that tap into regulatory demand for lower solvent content in paint.

IC TIP: Hold at 277p

Chief executive David Dutro reckons Elementis' focus on innovation and investment is what makes its products distinctive and necessary enough to keep clients in tough economic times. New products accounted for a record 9 per cent of sales last year, thanks to gains in the US coatings and Asia Pacific personal care markets.

Investment also saved the blushes of the oilfield drilling business. Supplying additives for drilling is not an ideal place to be when the oil price is in decline, yet second-half sales still grew 9 per cent as a new management team in Texas made progress in targeting key customer accounts.

This all contributed to a slight increase in operating cash flow to $144m (£93.5m), which was used both to grow the group's net cash balance and to reduce its pension deficit by more than a third to $66m. Broker UBS expects adjusted pre-tax profit of $150m this year, giving EPS of 25.9¢ (from $142m and 24.8¢ in 2014).

ELEMENTIS (ELM)
ORD PRICE:277pMARKET VALUE:£1.3bn
TOUCH:276-277p12-MONTH HIGH:301pLOW:226p
DIVIDEND YIELD:2.0%PE RATIO:11
NET ASSET VALUE:140¢*NET CASH:$64.2m

Year to 31 DecTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share** (¢)
20106979616.74.94
201176116227.87.00
2012**75713322.27.77
2013**77713423.38.07
2014**79014838.18.45
% change+2+11+64+5

Ex-div: 23 Apr

Payment: 22 May

*Includes intangible assets of $373m, or 81¢ a share
**Excludes special dividends of 4.79¢ for 2012, 5.86¢ for 2013 and 6.95¢ for 2014
£1=$1.54