Plagued by the economic weakness affecting many companies at the moment, shares in speciality chemicals firm Synthomer (SYNT) have plunged after it issued a profit warning thanks to the global backdrop.
In a trading update, Synthomer said the ‘growing weakness in the global economy has created a more challenging backdrop’ for the chemicals industry.
It added that ‘depressed European industrial activity combined with increased political and economic uncertainties have resulted in an overall slower trading environment’ throughout the third quarter of its financial year.
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As such, the company now expects - if current economic conditions persist - underlying profit before tax to be approximately 10% lower than 2018 and accordingly below current market expectations.
GLOBAL GLOOM TAKES ITS TOLL
Synthomer’s share price correspondingly fell over 10% to around 276p. That represents a big decline from the 390p mark the share price touched around six months ago.
Given the wide-ranging uses for their products, chemicals companies are always more exposed than those in other sectors to the wider macroeconomic situations, for better or worse.
The decline in the company’s share price over the last six months reflects the direction of the wider global economy, or at least where people feel it is heading.
CANACCORD KEEN ON SYNTHOMER
Despite the share price decline, broker Canaccord Genuity remains keen on the company.
Analyst Alex Brooks said, ‘The group has grown underlying EBITDA (earnings before interest, tax, depreciation and amortization) at least as fast as any of the peers we can identify over the past four years.
‘The mix of its business - which is now dominated by high-margin specialty units, such as polymer additives, coatings & adhesives, HSSBR (high-solids styrene-butadiene rubber) and NBR (nitrile rubber) - has notably improved over the past four years, in part through the acquisition of Hexion and Omnova.’
He added, ‘Furthermore, industry structure has notably improved in both Asian NBR - where additional capacity seems to be having only a modest impact on pricing - and in European SBR, where Synthomer is now one of just three substantial players and where we believe margin stability is much better than in the past.’
