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Volumes surge at Victrex

Sales volumes are surging ahead at specialist plastics manufacturer Victrex, but with 97 per cent of sales bound for export markets, foreign exchange translations remain a bugbear.
October 13, 2014

What's new:

■ Buoyant sales volumes

■ Larry Pentz takes over as chairman

■ Foreign exchange problems persist

IC TIP: Hold at 1599p

A week after Larry Pentz stepped into the chairman’s role at Victrex (VCT), the chemical exporter delivered a largely encouraging year-end update. Management reported a 22 per cent year-on-year increase in sales volumes for Victrex’s high-performance polymer products through to the September year-end.

A strengthening second half was driven by "higher than expected volumes" in the consumer electronics business. However, this is low-margin work compared with other Victrex business segments, so despite the step-up in sales management's profit expectations remain largely unchanged. In addition, with nearly all its products bound for export markets, the strength of sterling continues to hold back earnings. Nevertheless, management said the strong second-half momentum has been maintained into the 2015 reporting year, while sterling has eased back slightly against the greenback.

Encouragingly, receipts rose at the higher-margin Invibio medical unit, helped by a step-up in demand for the group’s implantable polymer PEEK-OPTIMA technology. This polymer product is used in the manufacture of a range of medical devices and for surgical applications, including spinal inter-body fusion. An enhanced version of the PEEK-OPTIMA product is due for roll-out during the first half.

 

Deutsche Bank says...

Buy. In the three months to September, volumes came in at 1,056 tonnes, which was up 36 per cent year-on-year. This was 18 per cent above our forecast and 29 per cent ahead of consensus. However, management's unchanged profit guidance implies only low single-digit percentage upside to the consensus of analyst expectations. Management noted that the October order book is looking very good and expects strong profit growth in the first half of the 2014-15 reporting year. While foreign exchange headwinds are considerable, Victrex is well placed to continue driving growth on an underlying basis. Expect 2015 pre-tax profits of £109m and EPS of 102p.

 

Numis Securities says...

Add. A good pre-close despite the caveats around currency and margins. A new PEEK plant will be on-stream in the early part of 2015. This will add 2,900 tonnes to the existing annual tonnage of 4,250, although in practice this plant has two lines, the commissioning of which can be staggered; real capacity has always been below the nameplate figure cited. As Victrex hedges its expected sales on a rolling basis, the foreign exchange hit will mount sharply in the current financial year: our £93.7m profit projection assumes a £13m debit, after only an estimated £1.5m for the year just ended. Our target price is set at 1,870p.