Synthomer plots future without pandemic premium

One indicator that people are tired of thinking of Covid-19 even as deaths continue could be that the tide has now gone out for pandemic success story Synthomer (SYNT), the industrial chemicals company that makes nitrile latex and related products. 

It unveiled a set of results that include a doubling of its cash profit in 2021 to £552mn and a dividend that was almost triple the year before as protective products such as gloves hit record levels last year. At the same time, the company’s share price has fallen by half in the past six months, and fell a further 3 per cent on the release of the 2021 results, which were comfortably in line with analyst expectations.  

Synthomer has said many times that orders would start to cool off eventually, and chief executive Michael Willome was clear that 2021 was an “extraordinary year”. “We have taken full advantage of strong profits,” he said, pointing to the acquisition of Eastman’s adhesive resins business and investment in greater capacity. 

The final profit figure was not as high as it could have been due to a provision of £57mn to cover a possible fine from the European Commission, which launched a cartel investigation into Synthomer and others in 2018 over the production of precursor chemical Styrene monomer. Willome could not go into more detail on the analyst call, saying the commission had asked for “confidentiality” from the company. 

Synthomer looks cheap, given its trailing and forward price/earnings ratios of around six times. Earnings will decline from here, but the company has been realistic about this cash-heavy period and the high dividend and capex spending combination looks like the right way to go. Buy. 

Last IC View: Buy, 534p, 5 Aug 2021