Key Numbers

Revenue of £130m was 9% up on the prior year, no guide on profitability. Volume up 28%, strong contribution from Consumer Electronics and lower sales in Invibio. Low sales in Polymer Solutions into O&G offset by other markets, new PEEK plant on stream. Invibio sales down 4% due to consolidation in the industry, will improve in second half. GMs up on production efficiencies.

Analysis

I don't usually comment on Victrex; the company is high quality and pretty well-known resulting in a consistently high valuation. My interest was piqued though as Greenlight Capital have acquired a ~2% short in the company, worth £34m...not a huge position for these guys but pretty decent.

It is hard to see where the value in shorting is straight away. The business is valued at 17x PBT, that is pretty high but it is hard to think of a company listed in the UK that is higher quality. Margins are unbelievable, for a manufacturing business, and growth is fairly strong. The balance sheet looks good too.

Once we start digging though, we start to see a few chinks in the armour. I think the biggest one is that pricing is looking a bit weak and they actually fell last year. Not good, but the company is investing heavily in even more capacity too. Given capacity utilization of 78%, it is hard to explain this decision. Yes, volume is growing strongly but there are clearly pricing issues too. I don't know the background on the product so it is kind of hard to know the trends that might be relevant. Management note future demand from "megatrends", if volume was to come off then this would get ugly very quickly. That said, it isn't unusual for dominant companies to make big investments like this to defend market share.

Other possible negatives are the mix shift to the lower margin Consumer Electronics business and exposure to currency or O&G. The exposure to currency and O&G is unlikely to be the core of this thesis, although both trends are clearly weighing on the business. Consumer Electronics looks more damaging, it is clearly growing faster than the other parts of the business which will results in margins being hit.

Turning now to the trading statement, we start to see this short thesis carry through. The headline is strong but pricing does look pretty weak and volumes are the only thing making up the numbers. I suspect…

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