Synthomer LON:SYNT is a chemicals company based in Essex. The company isn’t a household name, but its products go into many of the things we use today as coatings, adhesives and have applications in healthcare and construction.
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The company can trace its origins back to 1863, as the British subsidiary of Raj-era Indian trading house, Andrew Yule & Company. Yule & Co has survived until today as a government-owned engineering, tea and electric services company, that went into Indian government ownership on independence in 1948.
The British subsidiary continued after Indian independence as Yule Catto & Co. and had already turned to speciality chemicals, something that the company doubled-down on with the acquisition of Revertex Chemicals in 1980. The company changed its name to Synthomer in 2012.
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Acquisition has been a preferred route to growth for the company, with the company buying the US’s OMNOVA Solutions in July 2019 for USD824m following this up in October 2021, with the acquisition of Eastman Chemical’s adhesive resins division for USD1bn.
£276m rights issue to refill the coffers
That’s a fair bit of money to part with over the last few years. The company has been trying to refill its coffers this year and last week completed its GBP276m rights issue representing approximately 7.4% of the total number shares. The company also raised a lot of debt for its acquisitions programme and at the end of June had net debt of GBP795.8m, which to be fair to the company was significantly down from the GBP992.8m it had on its books a year earlier. The company did extend its USD400m revolving credit facility to July 2027 on the back of its rights issue.
The need to raise new funds has been intensified by Synthomer’s poor recent performance. In its last results to the end-June, published at the beginning of last month painted a poor picture. Revenue fell 12.5% year-on-year to GBP1.1bn and Earnings (EBITDA) down 55.8% to GBP72m y-o-y and managed to turn a GBP113.8m profit to a GBP8.8m – a 107.7% fall.
Synthomer makes progress on strategic priorities
Michael Willome, Synthomer’s CEO said at the time: “Whilst these results reflect the difficult demand environment across most of our end markets and geographies, we are encouraged by areas of significant progress […] All divisions have made progress against their strategic priorities as we continue to reposition Synthomer to deliver on its medium-term ambitions, supported by anticipated volume recovery in the coming years.”The share price has taken a similar trajectory. Opening the week (16th October) at 204p and dipping below GBP2 later during the first day’s session, Synthomer has fallen -81.3% year-to-date and -69.8% over one-year. The company has a market capitalisation of GBP46.2m, with its shares ranging between 195p and 1,247.07p over a 52-week period. The company was dropped from the FTSE250 index on September 18th.
The rights issue has obviously weighed in on this. Yes, a rights issue is a quick route to cash, but – especially if you are perceived to need the cash – it is dilutive and detrimental to your share price. Willome said: “The proposed rights issue will allow us to reduce our leverage towards our medium-term target and increase our focus on strategic execution to drive long term value.”
Today the company operates in nearly 40 countries globally with 5,000 employees in four divisions: Coatings & Construction Solutions, Adhesive Solutions, Health & Protection and Performance Materials. The company creates a water-based nitrile latex that is used in healthcare applications in carpets and foams and as a coating and ingredient in paper. Synthomer also produces acrylics and vinyls that are used at coating and construction materials, and as an ingredient in adhesive and petroleum products and other products.
Raising money through divestment
The firm has tried to raise money through divestment, selling its laminates, films and coated fabrics businesses to Germany’s Surteco Group for USD255m in December, something it initially acquired in the USD824m OMNOVA deal.
Has Synthomer been stuck in reverse for too long now? Willome thinks so, saying: We are confident that Synthomer’s medium-term earnings power is more than double our EBITDA performance over the last 12 months, driven by improved market conditions, operational and commercial excellence and our ongoing strategic evolution to become a true specialty chemicals business,” but then again that’s his job to say that.
It wasn’t long ago – 2021 – Synthomer shares were trading at more than GBP5,500p, a universe away from where the company finds itself now. It had a good lockdown, as the demand for PPE surged during the pandemic, and buoyed by its short-term success, may have overstretched itself a bit like one of its latex gloves. However, its gamble didn’t pay off, the post-Covid demand was not sustainable.
Synthomer is still a significant player in its sector
Now truly in penny-stock land, but admitting it has a problem, it has initiated a corporate restructuring giving itself a bit of short-term breathing room and relief from its debt obligations and could it be on the road back.
Whether it is a good investment, caution would be advised. There may still be some pain to come, and the share price could dip lower. However, Synthomer is still a significant player in its sector, management is confident of getting back above the break-even line by next year and in the longer-term might dream of going someway to the share price levels that it enjoyed only a few years ago
