This week’s update comes in two parts. First, I must confirm whether the recent Synthomer (LON:SYNT) share price slide has triggered my stop-loss rule. Next, I want to take a look at tile retailer Topps Tiles (LON:TPT), which has recently qualified for my buying screen.
I’ll start with Synthomer, as this is an existing holding that’s recently been falling fast. I may need to take action to stem losses and keep the trade within my rules.
Synthomer (LON:SYNT)
(Buy report: 10 August 2021)
Synthomer is a FTSE 250 chemicals company that supplies “aqueous polymers”. Profits have boomed during the pandemic, as the company is a major supplier of materials for medical latex gloves. Other key markets include adhesives, coatings, construction and textiles.
On 6 December, I noticed Synthomer’s share price falling sharply. After a brief rebound, the decline has continued. At the time of writing, SIF’s holding is showing a 29% loss.
I double-checked the RNS feed but there hasn’t been any news from the company. The slump was caused by a ‘double downgrade’ from brokers at Morgan Stanley, who cut their rating on the stock from overweight to underweight.
I’ve not been able to see the Morgan Stanley note. However, according to the newswire, the MS analysts believe Synthomer faces potential supply problems and uncertain volumes. Rising leverage and management changes are also cited as risks.
Morgan Stanley’s negative stance reflects my own view on this business, which has deteriorated since I added Synthomer to SIF in August.
Back then, I noted that it was hard to be sure how much of the group’s record performance during the pandemic would be sustainable afterwards.
I also commented on management’s decision not to split out the performance of Omnova Solutions, which was acquired for £654m in April 2020. This makes it hard for investors to identify how much of last year’s growth was organic, and how much was acquired.
However, I felt that the company probably offered some value, as the shares were trading on just 11 times forecast earnings, despite strong profitability metrics.
In addition, I wasn’t expecting the outgoing CEO and CFO to orchestrate another major acquisition while they were working out their notice periods. But…
