UK’s Synthomer ups earnings outlook for 2021 on H1 healthy margins

Author: Jonathan Lopez

2021/07/19

LONDON (ICIS)--Synthomer’s earnings before interest, taxes, depreciation and amortisation (EBITDA) are now expected to stand for the whole year "in excess" of £500m, at least 11% higher than the UK chemicals producer forecast in April.

In a trading update published on Monday and ahead of presenting financial results for the first half of 2021 on 5 August, Synthomer said it had registered “strong momentum” in the six-month period in all businesses.

In 2020, Synthomer closed several acquisitions, including that of Omnova, which are now being fully reflected in its balance sheet, hence the sharp rise in income.

However, the updated outlook published on Monday relates more to the European economy’s strong recovery from its pandemic-induced lows.

EBITDA is investors' preferred way to analyse a company's financial performance; the metric strips out variables a company could not control, thus reflecting true operating performance.

EBITDA for H1 stood at £320m, sharply up from 2020’s £100m.

This prompted the producer to upgrade its full-year forecast to £500m, compared with the £259m it posted in 2020.

In line with other chemicals producers such BASF or Covestro, Synthomer’s margins were higher than initially expected in the first six months of 2021.

Synthomer continues to benefit from its exposure to the fibres markets, which serve the rubber industry by making latex gloves and other medical products, demand for which has risen sharply since the onset of the pandemic.

“Synthomer has continued to see strong trading momentum across the business with volumes and unit margins ahead of the prior year in all divisions,” the firm said.

“In addition, the Nitrile latex business has continued to perform well, driven by exceptional demand due to the COVID-19 pandemic.”

It added that latex is expected to continue to thrive to the year end, and was be expected to normalise from 2022 onwards.

Synthomer produces aqueous polymers serving end industries like coatings, construction, textiles, paper, and rubbers.

SHARES UP AMID WARY STOCK MARKETS
Investors welcomed the earnings upgrade and Synthomer's shares were up on the London stock exchange by 1% at 12:00 local time, compared with the prior close.

The rise was considerable, considering most stock exchanges in Europe were falling around 2% in midday trading following sharp falls in Asian stocks earlier in the day.

The Delta coronavirus variant is already seen by investors as a major threat to recovery in many Asia-Pacific countries, as new lockdown restrictions have been imposed to contain its spread to avoid healthcare systems being overwhelmed.

Adding to the pessimism, vaccinations rates in most Asian countries remain well below what is needed to fully open up their economies.

Front page picture: Synthomer's facilities in Beachwood, Ohio, US 
Source: Synthomer