Despite a much lower profit in 2023, the note of optimism in the trading statement helped Synthomer (LON: SYNT) to become the highest riser today. Shares in the specialised polymers and ingredients supplier have risen by more than one-third to 192.9p.
In 2023, continuing revenues dipped by 15.5% to £1.97bn, while profit fell more rapidly, particularly in the adhesive solutions and health and performance materials divisions. Coatings and construction held up better. Corporate overheads were slightly lower. This led to a slump in underlying operating profit of more than three-fifths to £37.7m, but that was not enough to cover interest charges. There was a bigger pre-tax loss if discontinued activities are included.
Trading was hit by destocking. There were problems with the supply chain for adhesive solutions, but this is improving. Second half margins were better in all the divisions.
The number of sites in the group was reduced from 43 to 36 and there is likely to be further rationalisation. That contributed to the £18m of annualised cost savings. There could be a further £40m of savings to come over the next two years.
A positive is that net debt was halved to £499.7m, helped by the £276m rights issue at 197p/share in October. There was also a 20-for-one share consolidation. There are further divestments to be made.
The share price drifted down after the share consolidation, but it is slightly higher than at the beginning of the year and is still below the rights issue price.
Trading has improved this year with some restocking. Whether this will last is uncertain. There will be benefits from cost savings, although this will be offset by higher wages. Importantly, there should be free cash flow this year.
Analysts were expecting a £21m pre-tax profit in 2024, before trebling to £63m in 2025. Even if that is not upgraded it means that the shares are trading on 24 times prospective 2024 earnings, falling to just over six in 2025.
