Elementis's legacy personal care margins prompt Jefferies upgrade

Elementis’s "legacy" personal care business has more growth potential than was previously apparent, Jefferies said as the broker upgraded the chemicals maker to ‘buy’.

Jefferies analyst Joe Spooner said legacy personal care, though just 9% of group revenues, can play an important part in driving the company’s growth because of its high margins.

Elementis’s reporting suggests the personal care business owned by the company before it bought SummitReheis a year ago has operating margins of 55%. These margins are defensible, Spooner wrote in a note to clients. The outlook for earnings is therefore more solid, he added, upgrading Elementis shares from ‘hold’.

Spooner said: "We've previously underestimated the role ‘legacy’ personal care can play in driving group growth. We believe these sales are very high margin and with continued mid-teen growth can underpin the group growth outlook. [The] intention to provide more category margin detail from the interims may help demystify the moving parts."

Elementis posted annual adjusted operating profit up 32% to $128m (£105m) on 27 February, driven by increased sales at the personal care business. The company said that business “benefited from the first time contribution of SummitReheis and strong growth in our legacy operations".

At 1325 GMT, the shares were up 3% to 300.40p.