Victrex Plc – Operating with a strong financial position

Victrex Plc (LON: VCT) is a Speciality Chemical Company with operation interest lies in the manufacturing and sale of various polymers. Its operating segments are categorised into Industrial (Victrex Polymer Solutions) and Medical (Invibio Biomaterial Solutions).

Rationale for Valuation – BUY at GBX 2,179.28

• The Company has decent fundamental metrics as it has maintained a Net Margin and ROE above 20% and 11.5%, respectively, for the last three years.
• On the liquidity front, the current ratio was 5.55x in FY20, which was higher than the industry median. It has also maintained a current ratio above 3.25x for the last five years.
• The debt/equity ratio recorded by the Company in the past three years was considerably below the industry median. In FY20, the debt/equity ratio was 0.01x.
• The Company saw a positive start in 2021, with FY21 expectations unchanged, but the incremental improvement trend may stay variable.
• From the technical standpoint, 14-day RSI stood at around 49, which is supporting the upside movement.

Key Risks

• Fluctuations in exchange rates could impact the profitability and balance sheet position.
• The environment in which the Company operates is subject to several legislative and regulatory requirements. A failure to comply could adversely impact the local environment and manufacturing capability.
• The impact of COVID-19 has reduced customer demand and increased volatility while simultaneously impacting the entire supply chain.

Q1 Trading Update (covers the period 1 October to 31 December 2020, as on 12 February 2021)

• The Company witnessed a positive start to FY21, with an increase in Group revenue of 1% YoY and Group sales volume of 1% YoY.
• Overall Q1 performance was marginally ahead of the expectations, with an improvement in the geographical performance, mainly in Europe and the US.
• The Company has shown a strong cash generative business model, with an improvement in cash position from FY20. On 31 December 2020, the net cash was £84.4 million, with a high capital expenditure of up to £50 million.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Cash Flow Approach (NTM) (Illustrative)

Conclusion

The Company has started the year with a positive trend and incremental improvement across several of the end markets. The Company had achieved several milestones like generating revenue from Aerospace Loaded Brackets and decent business progress in Magma despite various operational headwinds. It had shown advancement on the ESF agenda and had a target of becoming carbon net-zero by 2030. Moreover, the Company had pointed out that Polymer & Parts strategy would play a key role in establishing long term growth opportunities. Overall, the Company has bright prospects with sustainable products, a robust financial position and a good liquidity position. The stock made a 52-week low and high of GBX 1,645.00 and GBX 2,498.00, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “BUY” stance on Victrex at the current market price of GBX 2,179.28 (as on 9 March 2021, before the market close at 8:10 AM GMT), with lower double-digit upside potential based on 22.73x Price/NTM Cash Flow (approx.) on FY21E cash flow per share (approx.).

Zotefoams Plc

Zotefoams Plc (LON: ZTF) is a FTSE All-Share listed cellular material technology Company, which focuses on the optimal material solution.

On 23 March 2021, the Company will release its 2020 preliminary results.

Rationale for Valuation – Hold at GBX 413.00

• The current ratio has stayed above 1.2x during the past three years, reflecting substantial liquidity to meet short-term obligations.
• The company's debt/equity ratio in the past two years was considerably below the industry median. In H1 FY20, the debt/equity ratio was 0.53x.
• In the last six months, the Company has delivered a decent return of ~36.14%, which was higher as compared to the FTSE All-Share Index.
• From the technical standpoint, shares were trading well above the short-term support level of 200-day (around GBX 401.00) simple moving average price, which reflects an uptrend in the stock.

Key Risks

• The Group is exposed to political and economic uncertainties such as Brexit and Covid-19 outbreak, which has a detrimental effect on business performance.
• The Company’s long-term growth prospect could be impacted negatively if the Board fails to implement strategies effectively or develop a wrong strategy.
• Fluctuations in exchange rates could impact the profitability and balance sheet position.

Recent News

On 23 February 2021, the Company stated that it had started production at a new £23 million plant in Poland.

Trading Update (for the Group's financial year ended 31 December 2020, as on 21 January 2021)

• The Company had achieved record sales in H2 FY20 and had reversed the decline of sales reported in the first half of 2020.
• In FY20, Group revenue was marginally above the previous year and was in line with current market expectations.
• As per the business segment, HPP sales surged by more than 10%, AZOTE® polyolefin sales were in line with the prior year and MuCell Extrusion sales decreased by more than 40%.
• The Company saw a strong operational performance and expects 2020 adjusted profit before tax and exceptional items to be at the top end of market expectations.
• It has solid cash generation, with a leverage ratio closer to 2x.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company believed that it had a strong portfolio of opportunities, a clear strategy and is well-invested incapacity to tackle various business challenges caused by the disrupted macroeconomic environment. It had reported robust financial numbers amid challenging Covid-19 pandemic conditions. Moreover, the Company has successfully managed to grow sales and retain a strong financial position. Overall, the Company prospects are looking good, and it could provide decent value to investors in the long term. The stock made a 52-week low and high of GBX 152.00 and GBX 530.00, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Hold” stance on Zotefoams Plc at the current market price of GBX 413.00 (as on 9 March 2021, before the market close at 9:50 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.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.

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.

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. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. 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 do 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 in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.