1. UK Chemical Industry Landscape

The Chemical Industry in the United Kingdom is a vital element of the primary manufacturing industry, and it is made up of businesses that specialise in the manufacture of industrial chemicals. Essentially, it turns basic ingredients into over 70,000 different products. Furthermore, the industry's goods are divided into three general categories: basic chemicals, speciality chemicals, and consumer chemicals. Furthermore, the Chemical industry's goods and technologies are utilised in medications, food and beverage, telecommunications, energy conservation, information technology, apparel, and much more. In all, the industry employs roughly 500,000 people across the country.

Key Trends in the Chemical Sector

Risk Exposures to the Chemical Sector

• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.
• Environmental Impact: The failure to adopt or apply ethical standards and environmental compliance can contribute to climate change.
• Health & Safety: The sector uses and manufactures hazardous chemicals, and any mishandling, leakage or accident can lead to injury or death at the chemical manufacturing plant.
• Government Regulations: Changes in regulations in the chemicals industry can affect the business environment.

SWOT Analysis

Benchmark Index Performance

Based on the last two years performance, the FTSE All-Share Chemicals index has outperformed the FTSE 100 and the FTSE 250 index. The FTSE All-Share Chemicals index generated a return of about 19.91%; however, the FTSE 100 produced a return of around 10.86%, and FTSE 250 generated a return of around 6.84%

Figure 1: Two Year Benchmark Index Performance

(Source: Refinitiv; Analysis done by Kalkine Group)

 Chemical Sector Outlook

According to the Chemical Industries Association members, the industry is one of the Britain’s biggest manufacturing exporters. Moreover, the industry witnessed a decline in the activity levels but still demonstrated growth during 2021. However, the inflationary pressure on raw materials & freight costs would persist for the near term and continue to cause operational headwinds for the companies operating in the industry. Meanwhile, the changed economic, social, environmental, and political expectations are expected to play an integral part in shaping the future. The chemical sector is crucial in enabling a future hydrogen economy and supporting battery technology & related materials to drive electric vehicle production. The strategic initiatives such as research & development and technology will shape the outlook of the chemical sector in 2022.

2. Investment analysis and stocks under discussion (CRDA, JMAT, and VCT)

After gaining insights into the Chemical sector, we would look at the business model of three Chemical players listed on the London Stock Exchange.

A. Croda International PLC (LON: CRDA)

(Recommendation: Buy, Potential Upside: 19.93%, Market Capitalization: GBP 10.11 billion)

Croda International PLC (LON: CRDA) is an FTSE 100 index listed diversified Chemical company. It has four operating segments: Life Science, Customer Care, Performance Technologies, and Industrial Chemical.

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)                                    

From a technical standpoint, the stock price is trading between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price. The 14-days RSI of ~38.41 approaches an oversold territory.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 19.93% over the current price of GBX 7,194.00 (as of 02 March 2022 at 08:07 AM GMT).

B. Johnson Matthey PLC (LON: JMAT)

(Recommendation: BUY, Potential Upside: 15.94%, Market Capitalization: GBP 3.42 billion)

Johnson Matthey PLC (LON: JMAT) is an FTSE 250 Index listed company. It is a British multinational Speciality Chemical Company. The group has four operational segments: Health, Clean Air, New Market, and Efficient Natural Resources.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

From a technical standpoint, the MACD line has given the bullish crossover against the signal line, indicating an upside potential in the stock price.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 15.94% over the current price of GBX 1,807.00 (as on 02 March 2022 at 08:06 AM GMT).

C. Victrex PLC (LON: VCT)

(Recommendation: Watch, Potential Downside: 12.61%, Market Capitalization: GBP 1.65 billion)

Victrex PLC (LON: VCT) is an FTSE 250 Index listed as an innovator in high-performance polymer solutions, emphasising the automotive, aerospace, energy and industrial, electronics, and medical applications.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

From a technical standpoint, the 20-days exponential moving average of GBX 1,963.00 indicated a correction in the stock price.

Valuation Methodology

Our illustrative valuation model suggests that the stock has a downside potential of 12.61% over the current price of GBX 1,899.00 (as on 02 March 2022 at 08:21 AM GMT).

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.

Kalkine Media Limited, an affiliate of Kalkine Limited, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.