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Don’t sleep on Synthomer

The chemicals group is taking measures to mitigate rising input prices
August 7, 2018

Back in 2016, Synthomer (SYNT) embarked on a huge capital expenditure growth programme tasked with helping the Essex-based group to capitalise on the many structural drivers fuelling demand for its speciality chemicals. Efforts to boost manufacturing output, widen its scope via acquisitions, and improve the resilience of its raw materials supply chain triggered a steady 2 per cent rise in underlying operating profit at constant currencies at the halfway point.

IC TIP: Buy at 535p

The bottom line was flattered somewhat by Synthomer’s £25.8m acquisition of BASF’s latex business Pischelsdorf in January, and sterling’s depreciation against the euro and Malaysian ringgit. Without those contributions, profits came in flat at £77m. Against a tricky backdrop of “persistently rising” raw material prices, the group made further inroads minimising its procurement costs by purchasing additional tank storage. Synthomer also finished introducing gap analysis, a process that enables manufacturers to compare actual performance with potential or desired performance, across all its plants. Those smart investments, on top of improved demand and a better product mix for nitrile latex, helped to offset US dollar invoicing headwinds.

S&P Capital IQ consensus forecasts expect adjusted EPS of 33p for the year-end, rising to 35p in 2019.

SYNTHOMER (SYNT)   
ORD PRICE:535pMARKET VALUE:£ 1.82bn
TOUCH:535-536p12-MONTH HIGH:560pLOW: 455p
DIVIDEND YIELD:2.3%PE RATIO:18
NET ASSET VALUE:135p*NET DEBT:40%
Half-year to 30 JuneTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201777053.412.53.7
201883486.220.64.0
% change+8+61+65+8
Ex-div:4 Oct   
Payment:6 Nov   
*Includes intangible assets of £408m, or 120p a share