Synthomer taps shareholders for £276mn

Synthomer’s (SYNT) half-year results laid bare the need for the company to embark on the £276mn rights issue it announced in conjunction.

Although the company pointed to actions it had taken – including the $268mn (£215mn) sale of its laminates and films business and a £150mn-£200mn cash management programme – worsening trading meant it was still in a hole. 

Sales volumes dropped by 17 per cent on “unprecedented” weak demand. And although net debt was cut by £200mn, a halving of its cash profit to £74.5mn meant leverage remained elevated, at 5.5-times. It was left with “limited flexibility to do anything but manage entirely for cash”, chief executive Michael Willome told investors. 

The rights issue is fully underwritten, but the terms are brutal – a 1 for 20 share consolidation will take place ahead of six new shares being offered per consolidated share. This equates to an 83.8 per cent discount to Wednesday’s closing price, or a 42.5 per cent discount to the theoretical ex-rights price of 343p per consolidated share.

We touted Synthomer as a buy idea in February but pointed out it was a high-risk play (with the potential for a discounted rights issue). Yet the size of the discount means that anyone who bought back then would view this as a rotten call. That’s fair enough.

The key question is where to go from here? We think many of Synthomer’s problems as temporary in nature and still view Willome’s recovery plan as sensible. Moreover, further sales of non-core arms (two are underway and more are planned next year) will hopefully mean it won’t have to return to shareholders to beg for more cash. Hold.