HSBC 'impressed' by quality of Elementis portfolio

HSBC upgraded Elementis to ‘buy’ on Wednesday and lifted the price target to 170p from 150p as it said it was impressed by the company’s portfolio quality and management execution "amid a challenging macro and weak end markets".

The bank said any recovery could fillip to both growth and margins for Elementis.

"We think Elementis’ portfolio has evolved into strong franchises with niche but leading positions with high margins and growth prospects," HSBC said. "Elementis also has long duration and differentiated resources in the form of the only hectorite clay mine in the world in California and talc deposits in Finland."

HSBC said the personal care business has strong cost advantages in the anti-perspirant actives, derives around 80% of raw materials from natural or naturally-sourced raw materials, and its foray in the skin and sun care markets is also bearing fruit.

"While its hectorite clay and talc-based applications in personal care and coatings will remain important, Elementis’ new product launches, increasingly specialty focus and timely divestments have yielded fruit - gross profit margins reached historic highs of 45.8% in 2023," it said.

The bank noted that group adjusted EBIT margins were 14.6% in 2023 and it targets margins to improve to 19% over the medium term, aided by improving its product mix, reducing costs and a normalisation of demand trends.

"We think margins could continue to rise from here (we expect circa 17% in 2027) and upside risks exist if demand conditions support and management execution remains strong."

At 1005 GMT, the shares were up 1.8% at 144.40p.