Defiant Elementis reinstates dividend

Chemicals group Elementis (ELM) has spent much of the past few months dodging takeover attempts and ignoring calls by activist investors to initiate an immediate sale. 

Since September, Franklin Mutual Advisers – one of its biggest shareholders – has published two strongly-worded letters urging the board to sell up. However, Elementis held its nerve, stating in a letter of its own that there is "substantial value still to be realised" in the business.

Its full-year results show that the group has managed to make progress on many of the metrics that have troubled investors. First of all, it has been able to deleverage substantially, with net-debt-to-Ebitda falling from 2.2 times to 1.4 in FY2023. 

While revenue was down, adjusted operating profit rose by 3 per cent to $104mn thanks to a combination of price hikes, cost reductions and improvements in its talc division. This business was merged with the group’s coatings arm at the start of the year to form a new “performance specialities” segment. 

Revenues here were 4 per cent lower than in FY2022, although profit remained flat. Meanwhile, the group’s personal care business saw sales drop and profits expand from $49mn to $50mn.

Although it’s too early to say that Elementis has rebounded after years of underperformance, it’s clear that the group is heading in the right direction. Management said it had enjoyed a good start to 2024, “with sales ahead on the prior year”, and investors will be pleased with the reinstatement of the dividend. 

The shares are trading on just under 15 times consensus earnings for the current year, which is not unreasonable given the group’s progress. We retain our hold rating for the time being.

Last IC view: Hold, 126p, 7 March 2023