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Synthomer drives the top line

The speciality chemicals group continues to drive the top line, but margins are set to improve
March 2, 2018

Global megatrends, including urbanisation, age demographics, rising wealth in developing regions, increasing mobility and stringent environment legislation, are fuelling demand for speciality chemicals, so it’s perhaps no surprise that Synthomer (SYNT), a key player in the market, is doing everything in its power to take advantage.

IC TIP: Buy at 466p

The Essex-based group continues to invest capital in both new and existing businesses, with three major bolt-on acquisitions – PAC (Dispersions), Speciality Additives and BASF Pischelsdorf – completed over the past two years, while a record £60m has been spent enhancing and expanding some of its main facilities. The upshot was constant-currency revenue growth of 38 per cent.

Profit growth was harder to come by. Statutory pre-tax profit understandably took a hit as Synthomer booked a £33m gain from Malaysian land sales the previous year. However, even on an underlying level, pre-tax profit rose just 3 per cent at constant currencies. Management blamed limited profit growth on tightening margins in the group’s nitrile latex and constructions and coatings dispersion markets. The latter business was impacted by a rise in raw material prices, while the former continued to suffer the consequences of a competitor increasing capacity in 2016.

Numis forecasts adjusted pre-tax profit of £137.6m and EPS of 31.7p in 2018, up from £130m and 30.5p in 2017.

SYNTHOMER (SYNT)   
ORD PRICE:466pMARKET VALUE:£1.58bn
TOUCH:465-466p12-MONTH HIGH:516pLOW: 444p
DIVIDEND YIELD:2.6%PE RATIO:21
NET ASSET VALUE:114p*NET DEBT:44%
Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20131.0559.114.26.0
20140.9953.813.3 7.8†
20150.8772.517.88.60
20161.0513732.511.3
20171.4886.421.812.2
% change+42-37-33+8
Ex-div:7 Jun   
Payment:6 Jul   
*Includes intangible assets of £397m, or 117p a share †Excludes special dividend of 7.8p