Performance Review of Two LSE Stocks in Chemical Business – Synthomer & Treatt

Performance Review of Two LSE Stocks in Chemical Business – Synthomer & Treatt

Summary

  • Synthomer stated that the performance of its three divisions, namely Performance Elastomers, Functional Solutions and Industrial Specialties are ahead of the last year.
  • The Company expects the full-year EBITDA to be around £232 million, which is better than the previous expectation.
  • Treatt PLC expects the FY20 revenue to be close to £109 million, which would be down by 3% year on year.
  • The revenue is affected due to the sales of orange oil-related products.

Shares of Synthomer PLC (LON: SYNT) were up by around 0.82%, whereas shares of Treatt PLC (LON: TET) were down by about 0.32% from their previous closing price (as on 16 October 2020, before the market close at 12:05 PM GMT+1).

Synthomer PLC (LON: SYNT) - Reinstated the interim dividend for FY20

Synthomer PLC is a UK based company that supplies Acrylic and Vinyl emulsion polymers. It also manufactures and supplies styrene-butadiene and acrylonitrile-butadiene latex that are used in coating, construction, technical textiles and papers. The Company operates in 24 countries, and it has 38 operational sites.

Q3 trading update (ended 30 September 2020) as reported on 14 October 2020

Synthomer reported that performance of all its three divisions, namely Performance Elastomers, Functional Solutions and Industrial Specialties are ahead of last year. The healthy demand for Nitrile latex and improved trading scenario for SBR latex supported the volume sales and margins of Performance Elastomers. The trading activity of Functional Solutions was improved following the integration of OMNOVA and resilient business in some of the end markets. The key reason behind the success of Functional Solutions business division is its diversified geographical clientele and end markets. Industrial Specialties business segment has started to improve after a subdued performance in Q2 due to covid-19. The run rate volumes and margins are better than the last year.

Given the resilient performance of the business units, the Company has revised the full-year EBITDA forecast upwards. The management has also reinstated the interim dividend for FY20 that was previously cancelled in April 2020. Synthomer has declared the interim dividend of 3 pence per share that would be paid in November 2020. The Company also intends to pay the final dividends for FY20 in line with its capital policy.

Synthomer highlighted that the integration of OMNOVA continues to be on the track that is expected to deliver a full-year cost synergy of USD 20 million on a run-rate basis and a USD 40 million saving by the end of 2022. The Company previously expected the full-year cost savings from the integration to be around USD 15 million. After discussion with the employees and process consultation Synthomer has decided to close the SBR site in Oulu, Finland by the end of Q1 2021. It is also reviewing the site in Marl, Germany, and the final decision of the assessment is expected to be announced in Q4 2020.

H1 FY2020 Financial Highlights

(Source: Company website)

Share Price Performance Analysis

1-Year Chart as on October-16-2020, before the market close (Source: Refinitiv, Thomson Reuters)

Synthomer PLC's shares were trading at GBX 391.20 and were up by close to 0.82% against the previous closing price (as on 16 October 2020, before the market close at 12:05 PM GMT+1). SYNT's 52-week High and Low were GBX 433.40 and GBX 182.30, respectively. Synthomer had a market capitalization of around £1.65 billion.

Business Outlook

The Company expects the FY20 EBITDA to be around £232 million that is expected to be 10% higher than what was expected in August 2020. It anticipates the net debt to EBITDA ratio to fall to about 2.0x as Synthomer is cash generative. Significant cost synergies are expected to be achieved from the integration of OMNOVA. As part of the strategic decision the Company is looking at the closure of sites in Europe, but it would continue to focus on the European market and would serve it through its assets based in central Europe. Synthomer is on track to bring the Malaysian project in operation by Q4 2021 that would increase the Nitrile latex production.

Treatt PLC (LON: TET) - Expects to declare a final dividend for FY21

Treatt PLC is a UK based company that manufactures ingredients. It provides the ingredients solution to the global flavour, fragrance and consumer goods market. The Company has a base in the UK, US and China.

Product Categories

(Source: Company website)

FY2020 trading statement (ended 30 September 2020) as reported on 9 October 2020

In FY20, Treatt expects to generate revenue close to £109 million, which would be down by 3% year on year. The revenue was primarily impacted due to a decline in raw material input costs of orange oil, which was down by around 50% in the last year. The total revenue grew by 4% year on year in FY20, excluding the impact of orange oil-related products.

The Company anticipates posting a profit before tax and exceptional items of £14 million in FY20. The performance was built up from the momentum set in H1 FY20 and contribution from the value-added products. The covid-19 impacted the business activity in Q3 FY20, and the business showed some recovery in Q4 FY20 as the hospitality sector started reopening in the US and Europe.

As on 30 September 2020, Treatt had net cash of £1.0 million and borrowing facilities of approximately £20.0 million. The Company expects to declare a final dividend for FY20. Treatt also stated that the construction work at the production facility in the UK is nearly completed. The expansion of the US manufacturing facility was completed last year that has doubled the production of some of the products.

Performance by business segment

The citrus business revenue fell by 10% year on year in FY20, and it contributed close to 50% to the total revenue. The gross profit of the citrus category improved as it adapted to more added value customer solutions. The demand for citrus co-products improved due to their use in household cleaning products. Health & Wellness, including sugar reduction and Fruit & Vegetables, constituted 7% each of the total revenue. Fruit & Vegetables segment revenue grew by 10% year on year in FY20. Tea category contributed 6% to the total revenue, and the traditional range of herbs, spices and floral contributed 11% to the total revenue.

Core product growth in H1 FY2020

(Source: Company website)

Share Price Performance Analysis

1-Year Chart as on October-16-2020, before the market close (Source: Refinitiv, Thomson Reuters)

Treatt PLC's shares were trading at GBX 620.00 and were down by close to 0.32% against the previous closing price (as on 16 October 2020, before the market close at 12:05 PM GMT+1). TET's 52-week High and Low were GBX 651.90 and GBX 310.00, respectively. Treatt had a market capitalization of around £370.76 million.

Business Outlook

The Company is hopeful of positive growth in FY21, given the diversification of markets and products that contribute to the total revenue. Treatt is entering the FY21 with the increased production capacity that should help in optimizing the opportunities. It is focused on the coffee business and expects to get some benefit from the cold brew coffee market. It also expects some healthy contribution from the global alcoholic seltzer market.

 

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