Synthomer reports in-line Q1 trading, reiterates full-year guidance

In its inaugural set of results under a divisional reporting structure, the company reported lower reported volumes at its Functional Solutions unit, due to the strong year-ago comparatives, and a slow start to the year, particularly in Europe, at its Industrial Specialities arm.

City-based analysts had anticipated both those trends.

But it wasn't all bad news, with margins in Functional Solutions making good progress overall during the quarter, with unit margins improving. And the company's expansion plans for the unit in Germany and the USA remained on track to be commissioned during the following quarter.

Results in Industrial Specialities meanwhile where described as in-line with expectations, with the trend in that business improving throughout the quarter and management saying they were "pleased" with the end of quarter exit rates seen.

Also as expected by some, Synthomer reported a "solid" quarter at its Performance Elastomers division following the addition of 90 kilotonnes of capacity at its Pasir Gudang site.

Despite the hurdle of strong comparables, strong demand saw the Elastomers unit report higher nitrile volumes together with improved unit margins, although conditions in the Styrene Butadiene Rubber market remained challenging.

Analysts at Canaccord Genuity noted how working capital continued to come in at roughly 10% of sales, as previously indicated, telling clients that Thursday's update should ellicit a positive response given the caution in the market after the company's "disappointing" trading in the fourth quarter.

"We continue to believe that Synthomer's discount against its UK specialty chemicals peers is difficult to justify, especially given the group's stability in unit margins. At our price target of 530p, which is based primarily on 2020E EV/EBIT, the shares would trade at 11.3x on that metric. We maintain our BUY rating and 530p target price."

As of 0830 BST, shares of Synthomer were trading 1.31% lower to 407p.