Victrex PLC

Victrex PLC (VCT) is a Lancashire-headquartered provider of high-performance polymer solutions, with 98% of revenue from sales outside the UK. The company is focused on the markets of medical, electronics, energy, aerospace and automotive. The polymer solutions of the group are based around PAEK (polyaryletherketones) and PEEK (polyetheretherketone), which was developed typically as a metal replacement. The operations are differentiated in two operating segments: Industrial and Medical.

Trading Update (as on 25^th July 2019)
In Q3 FY19, the company’s sales volume declined by 21 per cent to 912 tonnes as compared with the corresponding period of the last year. Group revenue reduced by 14 per cent to £72 million against the £84 million in Q3 FY18. Excluding the large Consumer Electronics order, Group volume reduced by 18 per cent and Group revenue declined by 12 per cent in Q3 FY19.  Year to date (to the end of Q3) the company sales volume decreased by 18 per cent to 2,811 tonnes from the prior year (2018 YTD: 3,417 tonnes), with year to date the company revenue (to the end of Q3) reduced by 13 per cent to £217.8 million (2018 YTD: £250.6 million).

Financial Highlights – H1 Financial Year 2019 (£, million)

(Source: Interim Report, Company Website)

In the first half of the financial year 2019, reflecting some de-stocking during the period and the weakness in Automotive and the associated impact on the Value-Added Resellers segment, group sales volume of 1,899 tonnes declined by 16 per cent compared 2,256 tonnes in H1 FY2018. Due to the weak trading performance and adverse currency impact, group revenue was £145.7 million in H1 FY2019 versus £166.6 million in H1 FY2018, down by 13 per cent and declined by 12 per cent on a constant currency basis. Gross profit declined by 18 per cent to £87.4 million, while gross margin was lower by 380bps, impacted by raw material and energy inflation, and weaker operating leverage. Group’s profit before tax of £50.2 million was 21 per cent down on the prior year, and the underlying value was down by 17 per cent, impacted by weaker trading, adverse currency, raw material and energy inflation. Basic earnings per share of 51.4 pence were 21 per cent down, and the interim dividend was flat at 13.42 pence/share.

Share Price Performance

Daily Chart as at 22-August-19, before the market close (Source: Thomson Reuters)

On 22 August 2019, at the time of writing (before the market close, at 2:30 PM GMT), Victrex PLC shares were trading at GBX 2,019.00, up by 1.05 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 3,320.00/GBX 1,813.68. The group’s stock is reflecting higher volatility as against the benchmark index based on the company’s beta of 1.26. The outstanding market capitalisation was around £1.73 billion.

Conclusion
A host of issues impacted the financials of the company in the first half, including weakness in the Automotive and Consumer Electronics market. During the final quarter of 2019, the company do not expect a recovery in these markets.

The sales and innovation activity, together with slightly improved comparatives, offers the prospect to deliver a more constant performance for the remainder of the FY19. In the medium to long term, the company remains in a decent position. With the Polymer & Parts strategy, the company could drive progress in the core business.

The company signed a notable development alliance with Airbus and actions undertaken to reduce cost and improve manufacturing efficiency had started to take effect. The company anticipated cost inflation and currency to be broadly neutral in the second half, with an expectation of gradual improvement.

A high cash generative business model, a healthy new product pipeline and strong structural growth opportunities place the company well for the medium to long term.
Keeping in mind the prospects of the company, we have given a “HOLD” recommendation at the current price of GBX 2,019.00 (as on 22nd August 2019, before the market close).

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