Synthomer on track on the back of Asian rubber bounce
Chemical group Synthomer said first-quarter trading had been on target as the encouraging rebound at its Asian nitrile business continued to offset subdued conditions in developed markets and currency headwinds.
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Demand for nitrile rubber, which is most commonly used to make rubber gloves used by doctors and dentists, was strong through the first quarter of 2015, having firmed and then begun to strengthen last year, with profit margins also improving further.
As a result, operating profit from Synthomer's Asia and Rest of the World (ARW) segment were "substantially ahead" of the prior year, counterbalancing volume weakness in the Europe and North America business.
The FTSE 250 group said it was currently developing plans for a further expansion of its nitrile latex capacity, and expects to make an announcement in the next few months.
Capital expenditure was low in the quarter, with the seasonal outflow of working capital lower than usual thanks the oil price slump.
Combined with the translation effect on euro-denominated debt, net debts shrank from to below £100m from £112m
Management said they remained confident on a medium-to-long-term outlook, but expect Europe to "remain challenging due to both the general economic environment and ongoing currency effects.
"In Asia we expect to continue to perform strongly due to the current demand and margin trends in nitrile."
Broker N+1Singer noted that the first special dividend, announced in February, was due in July with scope, we believe, for another following the conclusion of land disposals.
"The shares have had a great run following [chief executive] Calum MacLean’s appointment [in November] and we await the change in strategic direction that will inevitably follow."
Analysts at Canaccord Genuity have assumed the company, in the "unlikely scenario" of there being no acquisitions, forecast the company would pay a special dividend of 8.2p in 2016 and 11.3p in 2017 with a further "special special" if £28m from Malaysian land sales are returned.