Morningstar | VCT Updated Forecasts and Estimates from 10 Jul 2019
Narrow-moat Victrex reported first-half EBT of GBP 52 million, which was broadly in line with consensus. However, the company has lost confidence in a strong recovery in the second half of 2019. Second-half “growth†is now expected to be flat, year over year. In terms of tonnage, we were calling for about 5% growth in the second half while consensus was expecting this to be closer to 10%. We don’t expect to make any material changes to our long-term forecast or GBX 2,250 fair value estimate. At current levels, the shares look fairly valued.Weakness in 2019 resides in the cyclical industrial segment, with automotive, value-added resellers, and consumer electronics driving most of the decline. In the first half, tonnage was down 16% over 2018, which marks some recovery from the first quarter decline of 22%. Automotive stabilized in the second quarter although momentum remains muted. Volumes for electronics were down 42% in the first half, reflecting negligible volumes from consumer electronics. However, semiconductors were also down while the home appliances segment grew.
We had forecast another special dividend in 2019 but this now looks unlikely. The Brexit inventory build-up is not likely to be unwound for some time given ongoing political delays and the company announced new capacity is expected to be undertaken in fiscal 2019/2020, roughly 12 to 18 months ahead of our previous expectations. In addition, the continued weaker trading environment means some conservatism is warranted.
Victrex is a non-trading investment holding company. Through its subsidiaries, Co. is engaged in polymer solutions, focused on the strategic markets of Automotive, Aerospace, Energy (including Manufacturing & Engineering), Electronics and Medical. Co. develops solutions in Polyether ether ketone (PEEK) and Polyaryletherketones (PAEK) based polymer, selected semi-finished and finished parts. Co.'s operating segments are: Industrial (Victrex Polymer Solutions), which focuses on its Automotive, Aerospace, Electronics and Energy markets; and Medical (Invibio Biomaterial Solutions), which focuses on providing solutions for medical device manufacturers.
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