US Edition 
Questor share tip: Victrex sales beat expectations
Strong sales of plastic polymers were above managements expectations during a strong second quarter, says Questor.
Victrex
£19.86-22p
Questor says HOLD
VICTREX, the manufacturer of specialist lightweight polymers, has enjoyed a strong nine-month period of sales growth.
The company said yesterday that trading during the second quarter had been “well ahead of our expectations”. However, the shine was taken off a confident trading update as the company added that currency movements in key markets, such as the US and Europe, would have a worse impact on results this year and next.
The polymer specialist said sales had increased by 14pc to 1,584 tonnes during the six months to the end of March, when compared with the same period last year. While the strong performance was encouraging, the company warned that it was now selling higher volumes of lower profit-margin products. Questor thinks this means that, when the half-year results are reported on May 20, revenue growth will not be matched by growth in pre-tax profits.
“Looking forward, whilst first-half growth was particularly strong, we remain very mindful of a much tougher year-on-year comparative for the second half, and of currency headwinds,” the firm said.
Foreign exchange is now expected to have a “more adverse impact” during the current financial year, ending in September, and particularly into the next financial year.
The driving force behind the sales growth was a strong market in the automotive and aerospace sectors for the company’s Peek products, which are made from a new lightweight polymer developed by Victrex, which is also temperature and chemical resistant. The Peek material is being used to replace metal parts in aeroplanes such as the new Boeing 787, brake pads in cars, and components in smartphones and medical implants.
The FTSE 250-listed company is embarking on the largest expansion in its history by doubling investment in Peek manufacturing facilities. Capital investment rose to £40.7m from £27m last year, with Victrex building a third Peek manufacturing plant that it says will underpin growth in the future. The company said that the project remains on plan and on budget.
The specialist plastics group was hit by a sharp slowdown in electronics last year. Sales of electronics products fell 12pc in the year ended September 30.
However, this was offset by improved demand for lightweight brake pads on new fuel-efficient cars and aircraft in the second half. Overall sales improved by 10pc in the second half, bringing full-year sales to 2,920 tonnes.
The company also said it has enjoyed a steady recovery in the demand for its plastic products that are used in the medical market. The Invibio division, which provides products for spinal surgery, reported that revenue in the first half had increased by 11pc to £26.9m, from £24.2m in the first half of 2013.
Analysts from Barclays believe that it will be difficult to repeat the volume growth of 20pc experienced during the second quarter. That said, the company should benefit from sustained volume growth of up to 8pc and a sharp reduction in capital expenditure from next year when the new facilities are completed.
Victrex shares trade on a forecast earnings multiple of 22 times, falling to 20 times next year. The shares are by no means cheap, but Victrex demands a premium due to its high pre-tax profit margins at about 42pc. We retain our recommendation on this quality operator. Hold.