The European Union’s Registration, Evaluation and Authorisation of Chemicals (REACH) framework, which requires companies to register chemicals with the European Chemicals Agency, will not apply in the UK beyond Brexit, as things stand. So, if December’s guidance over (and increasingly likely) no-deal outcome from the Department of Environment, Food and Affairs (Defra) was any indication, this could be a tumultuous year for the likes of Victrex (VCT).
Defra assures us that fresh legislation would "preserve REACH as far as possible, while making technical changes that would need to be made because the UK has left the EU". But without a deal, companies registered within REACH will need to transfer registrations to an organisation based in the European Economic Area, while UK downstream users currently importing chemicals from an EEA nation would face new registration requirements.
Given that it is the sole manufacturer of high-end thermoplastic 'PEEK' in the EU, Victrex is hoping to "exploit longer-term tariff mitigation strategies" there. But the company is burning cash as it stockpiles materials as a Brexit contingency, which makes last year's special dividend and growing operating profits less likely to be matched in 2019.
Not all chemical companies have suffered at the altar of European politics. Johnson Matthey (JMAT) was less affected by changes in Brussels in 2018. Undeterred by new and rather disruptive European emissions standards, a slowing car market and the more long-term prospect of bans on petrol cars, its Clean Air Division, which supplies catalytic converters, continues to do well. Johnson will begin manufacturing battery material in 2021-22, which can be used in hybrids and fully electric vehicles.
Name | Price (p) | Market cap (£m) | 12-month change (%) | Trailing PE | Forward PE | Dividend Yield (%) | Last IC View |
Croda International | 4,809 | 6,330.71 | 8.48 | 25.2 | 23.3 | 1.75 | Hold, 4,782p, 25 Jul 2018 |
Elementis | 185.2 | 1,074.89 | -30.31 | 13 | 11.8 | 3.26 | Buy, 280p, 31 Jul 2018 |
Johnson Matthey | 2,979 | 5,765.36 | -7.54 | 13.2 | 12.4 | 2.74 | Hold, 3,040p, 21 Nov 2018 |
Sirius Minerals | 22.12 | 1,061.11 | -3.57 | n/a | n/a | n/a | Buy, 29.90p, 27 Sep 2018 |
Synthomer | 375.2 | 1,275.23 | -23.43 | 11.7 | 10.7 | 3.33 | Buy, 535p, 07 Aug 2018 |
Victrex | 2,376 | 2,047.48 | -7.55 | 18.6 | 17.4 | 2.51 | Hold, 2,402p, 05 Dec 2018 |