Synthomer is a specialist chemical company that supplies aqueous polymers. These polymers are used in industries such as coatings, construction, textiles, paper and synthetic latex gloves. The company occupies a leading position in most of its markets, is geographically diversified, and is increasingly focused on higher-margin product differentiation.

Its c14% EBITDA CAGR since 2014 has been driven by both organic investment and acquisitions (four have been made since 2016, with the most recent, Omnova, being particularly notable in terms of scale). So it seems that this group is growing steadily from a strong position.

So why, then, do its shares trade on just 8.8x forecast earnings?

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A part of the answer may come down to the sustainability of its current level of profits. The group delivered an exceptional half-year performance recently due unprecedented demand for nitrile products arising from the need for PPE from healthcare providers. So recent results are distorted by an exceptional Covid performance.

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But this is not just a Covid play. The group has grown annual EBITDA from £100m in 2015 to the current run-rate of c£500m, and is positive on its future prospects. So perhaps we should be taking more notice of this stock at the current valuation, even if it is at near all-time highs?


Profile

What are the company's principal business activities, how does it generate its revenues?

Performance Elastomers - 41.8% of group revenue (£690.3m)

Performance Elastomers is focused on healthcare, carpet and paper markets through and supplies water-based Nitrile Butadiene Rubber latex (NBR) and Styrene Butadiene Rubber latex (SBR) products. The acquisition of OMNOVA has expanded the division’s scope to include the Performance Materials and Elastomeric Modifiers product lines.

Market position: No. 2 producer globally in NBR latex. No. 1 producer in European SBR latex. No. 1 producer globally of High Solids SBR.

Functional Solutions - 38.8% of group revenue (£646.7m)

Functional Solutions is focused on coatings, construction, adhesives and technical textiles markets and supplies acrylic and vinylic water-based dispersions. Following the acquisition, the OMNOVA CAST (Coatings, Adhesives and Surface Treatment) and Oil & Gas businesses have been integrated into this division.

Market position: Top five global water-based polymer producer, with leadership positions in dispersions in Europe, Middle East and Asia

Industrial Specialities - 16.2% of group revenue (£264.9m)

Industrial Specialities is focused on speciality chemical additives…

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