Synthomer Plc

Synthomer Plc (LON: SYNT) is operating as a supplier of aqueous polymers and provides customer-focused services from several regional centres.

Investment Highlights - Synthomer Plc – Sell at GBX 380.20

• Due to the impact of covid-19, the Company faced significant risks which impacted the financial performance significantly.
• As per valuation metrics, EV/EBITDA & Price/Earnings multiples of the Synthomer Plc are currently higher as compared to the corresponding multiples of the Chemicals industry, reflecting overstretched valuations.
• The Company’s Debt/Equity ratio for H1 FY2020 stood at 1.32x and is consistently increasing since FY2018, reflecting a higher portion of the debt in the capital structure.
• From the technical standpoint, 90-day RSI is supporting downward movement (around 59 level), which means the stock price could decline in the short term.

Key Risks

• The Company operates in highly competitive markets and may market share will fall if it fails to innovate its products.
• In the current set of COVID-19 environment, Specialty Chemicals space has taken a hit given the issues circling around production and demand.

Trading Update Q3 FY2020 (released on 14 October 2020)

• In the third quarter of FY2020, the Company has shown strong trading performance across all business units.
• The Company raised EBITDA guidance for FY2020 by 10%, stood in line with market consensus.
• SYNT remained highly cash generative and expects to reduce to circa 2.0x net debt to EBITDA by the end of FY2020.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company witnessed an improvement in the trading environment in the third quarter of the financial year 2020, but still remained on the lower side. Due to imposed travel restriction, the operational and financial performance impacted for the short-term period. The integration of OMNOVA remained ahead of schedule and will help the Company to achieve synergies. With the increased number of covid-19 cases, the growth projects might delay or put on hold. Moreover, the Company’s share price is trading near its 52-week high, which raises doubt over its upside potential. The stock made a 52-week low and high of GBX 182.30 and GBX 433.40, respectively.

Based on the risks associated and support from valuation done using the above method, we have given a “Sell” recommendation for Synthomer Plc at the current price of GBX 380.20 (as on 30 October 2020, before the market close at 8:05 AM GMT) based on 13.62x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

Tekmar Group Plc

Tekmar Group Plc (LON: TGP) is a UK based company provider of flexible pipe protection systems, engineering services, subsea cable and umbilical cords. 

The Company will release H1 FY2021 results on 1 December 2020.

Investment Highlights – Tekmar Group Plc – Sell at GBX 63.95

• Due to covid-19 pandemic, the Company experienced delays in sales order intake and contract awards in H1 FY2021.
• As per valuation metrics, EV/Sales, Price/Earnings and Price/Cash Flow multiples of the Tekmar Group Plc are currently higher as compared to the corresponding multiples of the Construction & Engineering industry, reflecting overstretched valuations.
• In the last one year, the Company delivered a negative return of ~ 72.73% and delivered significantly lower returns compared to the benchmark Index (FTSE-AIM Index).
• From the technical standpoint, shares were trading below the support level of 20-day simple moving average prices (76.40), which reflects a downtrend in the stock and can move down further.

Key Risks

• The Company’s operational performance is significantly impacted by the outbreak of covid-19, as it could lead to a significant and long-term downturn.
• The Company operates in a highly competitive market, and new competitors lead to a price reduction and further reduce sales volume.

Recent News

On 15 October 2020, Tekmar Group announced the selection of Alasdair MacDonald as CEO (Chief Executive Officer), effective immediately.

Trading Update for H1 FY2021 (released on 30 October 2020)

• In the first half of the financial year 2021, the Company experienced a short delay in sales order intake and contract awards, reflecting the impact of covid-19.
• The revenue in H1 FY2021 declined by 10% compared to the first half of the financial year 2020.
• The Company is seeing increased competition in the core market for TekLink, with the entry of new entrants in the global offshore wind market.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company, due to COVID-19 disruption, witnessed delays in sales order intake and contract awards, which resulted in a 10% lower revenue for H1 FY2021. The Company has also changed its financial year-end and accounting reference date to 30 September from 31 March, to pay attention during busiest trading periods. Despite the covid-19 crisis, the Company has a strong pipeline based on opportunities available in the offshore energy market. At present, the Company is not able to provide any guidance for FY2021, due to lack of demand visibility. Despite the strong performance, the Group’s operations are impacted by the covid-19 pandemic and may also impact production facilities further. The stock made a 52-week low and high of GBX 36.20 and GBX 185.00, respectively.

Based on the risks associated and uncertain business environment, we have given a “Sell” recommendation on Tekmar Group Plc at the current price of GBX 63.95 (as on 30 October 2020, before the market close at 8:00 AM GMT).

 

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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