Shares in plastics manufacturer Synthomer (SYNT), fell by 6% to 317.2p in early trading despite the group announcing that full year EBITDA (earnings, before interest, taxes, depreciation and amortisation) would be in line with analyst's forecasts which sit at £518.4 million compared with £259.4 million last year.
However nitrile margins, have normalised at a faster rate than management had anticipated, and this will impact profitability moving forward.
NITRILE IS NORMALISING
During the pandemic, Synthomer experienced continued high demand for nitrile gloves, which are used extensively in hospitals and other segments of the medical sector, due to their high strength and superior puncture resistance.
NBR (Nitrile) margins are retracing more quickly than management had previously forecast. This is partly because the current Omicron strain is less virulent and presents a quicker transition out of the pandemic than originally anticipated
According to management ‘year-to-date NBR demand has continued to be subdued due to high inventory levels of medical gloves and reduced demand due to the easing of the Covid19 pandemic.'
NUMIS VIEW
Numis analyst Kevin Fogarty maintains ‘reflecting the faster than expected normalisation of NBR margins, and near term market dynamics, we lower our full year 2022 and 2023 earnings, before interest, tax, depreciation and amortisation forecasts by 20% and 11%, ahead of 2021 results on 3rd March. Our revised price target is 450p from 650p’.
