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Elementis scales up to capture growth markets

The speciality chemicals group is bedding in its marquee acquisition
August 1, 2017

An expanded balance sheet, at least in terms of intangible assets and long-term borrowings, isn’t the only consequence of Elementis’s (ELM) $360m (£275m) deal to acquire SummitReheis. An initial contribution from the US-based speciality chemicals company fed into a 147 per cent rise in half-year sales at the group’s personal care segment to $77.2m. The integration is on track for completion by the end of the year, but the influence of the subsidiary over the long haul is intertwined with the expansion of Asia's mid-tier consumers. As median incomes rise, so does demand for personal care products.

IC TIP: Buy at 299p

All three business divisions – specialty products, chromium and surfactants – contributed to a 26 per cent increase in adjusted operating profit to $67.6m, although the $9.1m contribution from surfactants (used in the production of chemical components) was the result of favourable pricing. This dynamic is not expected to be maintained over the remainder of this year and beyond, so management is now considering hiving off the business.

There was also a noteworthy contribution from the energy business, as demand from oilfields in North America started to recover, albeit from a low base. Nevertheless, sales were up 78 per cent to $29.3m and the momentum has been maintained into the second half.  

N+1 Singer forecasts adjusted pre-tax profit of $114m for the December year-end, leading to EPS of 19¢, against $87.9m and 17.2¢ in 2016.

ELEMENTIS (ELM)   
ORD PRICE:299pMARKET VALUE:£1.39bn
TOUCH:298-300p12-MONTH HIGH:313pLOW: 197p
DIVIDEND YIELD:2.2%PE RATIO:25
NET ASSET VALUE:136¢*NET DEBT:50%
Half-year toTurnover   Pre-taxEarnings perDividend
30 Jun ($m) profit ($m)share (¢) per share (¢)
2016 (restated)33446.38.12.7
201741554.19.32.7
% change+24+17+15-
Ex-div:07 Sep   
Payment:29 Sep   
£1 = $1.31. *Includes intangible assets of $698m, or 150¢ a share.