This report is an updated version of the report published on 25 May 2022 at 08:22 AM GMT+1

1. UK Chemicals Sector Landscape

The UK chemicals sector is diverse in nature and comprises of commodity/bulk chemicals, specialty chemicals, polymers, and consumer chemicals like personal care and cleaning products. The industry mainly includes Small and Medium Enterprises (SMEs) and micro-businesses. Some of the well-known names in the sector include Linde Public Limited Company, Cargill PLC, Air Products Group Limited, among others.

As per data from the European Chemical Industry Council, chemical and pharmaceuticals industry in the UK was the second-largest manufacturing industry in 2020, with over £53 billion of exports and £28 billion of value-added to the UK economy. The industry is prevalent in the North of the country, with Northwest of England being the leading chemical producer in the UK, followed by Scotland, the Northeast, and the Yorkshire areas.

Key Trends in the Chemicals Sector

(Source: Analysis done by Kalkine Group)

Risk Exposures to Chemicals Sector 

• COVID-19 Risk: The onset of the COVID-19 pandemic has impacted a few key end-markets, such as aerospace and automotive. The threat of new variants of the virus still persists.
• Presence of Prudent Regulations: The sector is under the purview of prudent regulatory measures which can impact the R&D activities and profitability of the sector. This can force the companies to outsource their ingredient products, thereby adding to supply chain risks and delays in delivery.
• Input Price Risk: Energy prices like gas and electricity have risen in the recent past, thus making the sector prone to the risk of high input costs.

SWOT Analysis

(Source: Analysis done by Kalkine Group)

Chemicals Sector Outlook

The chemicals sector was impacted initially by the onslaught of the pandemic; however, it had recovered to pre-pandemic levels by the end of the third quarter of 2020. This reflected resilience in the sector and was aided by the stockpiling of chemicals ahead of the UK-EU transition. The industry also forms an integral part of the European chemical market. With the fading impact of COVID-19 pandemic, the economy looking to transition to the pre-pandemic phase, the chemicals industry has an important role to play in supporting the growth and demand for its allied industries.

2. Investment analysis and stocks under discussion (CRDA and SYNT)

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

A. Croda International PLC (LON: CRDA)

(Recommendation: Buy, Potential Upside: ~17.37%, Market Capitalization: GBP 9.46 billion)

Croda International PLC 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 is hovering between the middle and lower Bollinger band with 14-day RSI level of ~40.10, reflecting the potential of upward movement in the near term.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 17.37% over the closing price of GBX 6,752.00 (as of 24 May 2022).

*Peers: Heiq PLC, Treatt PLC and Symphony Environmental Technologies PLC. 

*All peers are selected from the Chemicals sector as classified on the LSE website.

B. Synthomer PLC (LON: SYNT)

(Recommendation: Buy, Potential Upside: 15.52%, Market Capitalization: GBP 1.45 billion)

Synthomer PLC is an FTSE 250 listed polymer producing company that serves various industries, such as coatings, construction, textiles, paper and synthetic latex gloves.

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)

From a technical standpoint, the stock is sustaining above its 20-day MA (GBX 299.74) trend line, indicating bullishness in prices in the near term.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 15.52% over the closing price of GBX 309.600 (as of 24 May 2022).

*Peers: Morgan Advanced Materials PLC, TI Fluid Systems PLC, Carclo PLC and Johnson Matthey PLC.

*All peers are selected from the Chemicals sector as classified on the LSE website.

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

Note 2: Investment decisions should be made depending on the investors’ appetite for 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 is subject to the factors discussed above.

Note 3: Target Price refers to a price level that 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.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.  

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 the 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.

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