- Earnings guidance cut by 10% to 15%
- Business hit by medical glove destocking
- Company focusing on cash generation, reducing debt
Chemicals firm Synthomer (SYNT) saw its shares fall off a cliff as it guided for earnings to be 10% to 15% below previous guidance in an unscheduled trading update.
The reaction from investors was out of synch with the scale of the downgrades as it slumped 36% to 88.4p. This reflects concern at how rapidly the situation has deteriorated given the company only posted first-half results less than two months ago and also likely the febrile backdrop in the UK market.
Chemicals businesses tend to be closely linked to wider economic performance with the sector’s products flowing into nearly every industry sector. This is part of what has knocked Synthomer off course, with reduced demand in the construction and coatings end markets.
MEDICAL GLOVE DE-STOCKING PAIN
However, added to this has been a longer than expected de-stocking of medical gloves as the world has emerged from the Covid-19 pandemic. Synthomer now doesn’t expect this headwind to abate before the end of 2023.
To provide some context, in the wake of numbers for the six months to 30 June Berenberg thought the de-stocking of existing rubber glove volumes would only last until the end of this year.
The company says it is focused on reducing its borrowings, which stood at £992.8 million as at the end of June (more than double the current market valuation), and cash generation.
To this end it notes it is progressing what it describes as ‘a number of strategic initiatives and operational actions’ these are intended to trim costs, scale back capital expenditure and reduce working capital requirements.
An update on strategy on 12 October may see management face some tough questions from analysts and investors.
