Company Reports

We will discontinue analyst coverage of Victrex on or about Feb. 7, 2024. We provide analyst research and ratings on over 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

Narrow-moat Victrex reported preliminary results for 2023 with full-year volumes at 3,598 metric tons, down 24% from 2022, mostly driven by destocking and weak demand for the value-added resellers division. Underlying profit before tax of GBP 80 million was also down 16% year on year, hit by the weaker trading environment, but broadly in line with company-compiled consensus. However, the gross margin was up 180 basis points supported by improved pricing and a favorable sales mix. The group is expecting double-digit volume growth for 2024 with a slow start, but recovering in the second half. New midterm targets for revenue were set at 5%-7% CAGR with 8%-10% CAGR potential in the case of commercial success of the company's "mega-programs." Demand is expected to continue to be soft in VAR, electronics, energy, and industrial. Automotive and aerospace remain positive with medical also expected to deliver full-year growth. The stock is trading down around 4% intraday at the time of writing. The midterm base-line scenario is aligned with our forecast, so we don’t expect to make a material change to our GBX 2,000 fair value estimate. At current levels, the shares look undervalued.

In 2022, battery electric vehicles represented nearly 10% of global auto sales, up from a little less than 6% in 2021. Much of the growth occurred in China, which has been a leader in EV sales over the past decade. However, with national EV subsidies in China expiring in 2022 and far lower sales in the U.S. and Europe, the market questions if EV sales can continue to grow without subsides.

U.K.-based Victrex is the creator of and dominant market leader in polyetheretherketone, or PEEK, a lightweight ultra-high-performance plastic that suits the most demanding applications in transportation, oil and gas, and electronics. It serves these industrial markets through its industrials segment, which accounts for around 80% of sales. The company has broadened applications of PEEK to healthcare, notably implantable spinal fusion cages. Healthcare sales are housed in the medical segment, which contributes the other 20% of sales, but has higher margins than the industrial business.

Narrow-moat Victrex reported third-quarter volumes of 818 metric tons, down 38% versus the prior-year period, but in line with the estimate of 800 metric tons that was disclosed in its recent trading update. Volumes are declining this year on macroeconomic weakness and destocking across several end markets. Weakness in the third quarter was mainly seen in electronics, energy, and industrial, and with value-added resellers while growth in aerospace was good and automotive was stable. The medical business continues to perform strongly with year-to-date revenue up by a double-digit percentage. The gross margin is expected to improve in the second half of the year with easing energy costs and higher selling prices. The company continues to expect 2023 profit before tax to be GBP 80 million-GBP 85 million. We expect to lower our near-term estimates, but don’t expect to make a material change to our GBX 2,100 fair value estimate. At current levels, the shares look undervalued.

Narrow-moat Victrex reported first-half profit before taxes of GBP 43 million, down 15% in constant currency terms versus the prior-year period. Average selling prices were up a strong 18% due to pricing actions, mix, and foreign exchange. However, the 14% decline in volumes was below previous company expectations, which is likely the reason shares were down 8%-10% intraday as the full-year company compiled consensus estimates now look out of reach. We expect to trim our near-term estimates but don’t expect to make a material change to our GBX 2,100 fair value estimate. At current levels, the shares look undervalued.

In its first-quarter trading update, narrow-moat Victrex reported revenue of GBP 78.8 million, up 6% year on year. Volume levels of 948 metric tons were down 8% and below our growth expectations of 3% for the full year. However, the average selling price of GBP 83 per kilogram was ahead of our expectations, increasing by 14%, which helped to counteract the decline in volume. Management remains confident of its expectations for the full year. Although there may be slight adjustments to our price and volume estimations for 2023, we don’t anticipate making any significant changes to our GBX 2,100 fair value estimate. Shares traded down around 2% intraday. The shares look undervalued at current levels.

Narrow-moat Victrex reported full-year volumes of 4,727 metric tons (1,140 metric tons in the fourth quarter) and underlying profit before tax of GBP 95.6 million, broadly in line with company-compiled consensus. Gross margin was down 280 basis points due to raw material and energy cost inflation and the lag for price increases to recover these higher expenses. Fiscal 2023 guidance was typically nonspecific with the group indicating that further improvements on fiscal 2022 volumes will be challenging. We expect to trim our fiscal 2023 estimates modestly, but don’t expect to make a material change to our GBX 2,100 fair value estimate. At current levels, the shares look undervalued.

U.K.-based Victrex is the creator of and dominant market leader in polyetheretherketone, or PEEK, a lightweight ultra-high-performance plastic that suits the most demanding applications in transportation, oil and gas, and electronics. It serves these industrial markets through its industrials segment, which accounts for around 80% of sales. The company has broadened applications of PEEK to healthcare, notably implantable spinal fusion cages. Healthcare sales are housed in the medical segment, which contributes the other 20% of sales, but has higher margins than the industrial business.

Narrow-moat Victrex reported third-quarter volumes of 1,323 metric tons, up 10% over the prior-year period. Revenue was up 16%. Demand remains solid and the order book is healthy going into the fiscal fourth quarter. However, we have adjusted our near-term margin estimates down on cost inflation and reduced fiscal 2023 volume growth expectations as headwinds build in the economy. Consequently, we are trimming our fair value estimate to GBX 2,100 from GBX 2,250. However, the shares continue to look undervalued.

The European chemicals sector enjoyed strong investment returns once central banks turned on the liquidity taps to combat the coronavirus pandemic in March 2020. At the start of 2022, the outlook remained bright as demand remained robust while inflation, particularly for raw materials, was expected to peak in the first half of 2022. However, we think the Russia-Ukraine war has changed the equation, leading to a more ominous picture in the back half of the year given our expectations for sustained raw material inflation and rising interest rates. Considering guidance provided by companies in the sector does not account for the impact of the Russia-Ukraine war, we think sector guidance is generally too optimistic and thus, cuts may be necessary in the second half of 2022. While our 2022 outlook for the sector has dimmed, we see opportunities at current prices. For the industrial chemical companies, we prefer Lanxess given its compelling valuation (0.5 times price/fair value estimate) and dual catalysts (business transformation, lithium project) that should create value regardless of the economic environment. For the consumer chemical companies, we prefer Chr. Hansen given its relatively attractive valuation versus peers, wide moat rating, and leading organic growth outlook.

Narrow-moat Victrex reported first-half fiscal 2022 underlying profit before tax of GBP 48.2 million, up 3% over fiscal 2021 or 10% in constant currency. After 16% volume growth in first-quarter fiscal 2022, second-quarter growth was only 3%, but this was mainly due to a tough comparable. Shares are down 7% intraday, but the whole sector is down about 3%-4%. We will likely trim our margin estimates on our expectation for continued cost inflation but we don’t expect to make a material change to our GBX 2,250 fair value estimate. At current levels, the shares look undervalued.

In its first-quarter trading update, narrow-moat Victrex reported revenue of GBP 74.6 million and volume of 1,025 metric tons, up 9% and 16%, respectively. Shares traded down 2% intraday, in line with the group. Our full-year volume expectation of 4,662 metric tons is above consensus and we remain confident in that number. Previous guidance for fiscal 2022 gross margin was in line or slightly better than fiscal 2021 (54%). However, with energy and raw material inflation continuing to rise, that now seems optimistic. We will likely trim our near-term margin forecast but don’t expect to make a material change to our GBX 2,250 fair value estimate. At current levels, the shares look fairly valued.

U.K.-based Victrex is the creator of and dominant market leader in polyetheretherketone, or PEEK, a lightweight ultra-high-performance plastic that suits the most demanding applications in transportation, oil and gas, and electronics. It serves these industrial markets through its industrials segment, which accounts for around 80% of sales. The company has broadened applications of PEEK to healthcare, notably implantable spinal fusion cages. Healthcare sales are housed in the medical segment, which contributes the other 20% of sales, but has higher margins than the industrial business.

Narrow-moat Victrex reported fiscal fourth quarter volumes of 1,436 tonnes, double the prior year period and about 15% above the company compiled consensus. However, profits were largely in line due to margins being below expectations from lower-than-expected medical in the mix and extra costs from an extended maintenance period. Cash generation was strong, which led to a mostly unexpected 50 pence special dividend being declared. With the special dividend and a generally positive outlook for fiscal 2022, shares rose 4% on the day, good enough to lead the group. We don’t expect to make a material change to our GBX 2,100 fair value estimate. At current levels, the shares look slightly overvalued.

On Aug. 5, U.S. President Joe Biden announced plans to sign an executive order calling for electric vehicles to be 40%-50% of new auto sales in the United States by 2030. The target includes battery electric vehicles and plug-in hybrids. This mirrors our thesis that the U.S. will see 30% EV adoption and 50% hybrid adoption, of which we expect plug-in hybrids will be 10%-20%, by 2030. Though the order is nonbinding, this aligns with stated plans from multiple U.S. automakers. As a result, we maintain our U.S. EV and hybrid adoption outlook. Using our regional buildup model, we continue to forecast that EVs and hybrids will make up 2 of every 3 autos sold globally by 2030, with 30% coming from EVs.

Narrow-moat Victrex reported third-quarter sales volume of 1,202 metric tons, broadly in line with expectations. Shares are trading up modestly intraday. Last quarter, we asserted management's tone on the second half seemed a bit too conservative. This has proved true. Victrex now sees some upside to current full-year expectations with its internal assumptions now close to the upper end of the company-compiled consensus, which is for sales volume of 4,220 metric tons. The fourth-quarter volume will likely be slightly lower, sequentially. We don’t expect to make any material changes to our model or GBX 2,100 fair value estimate. At current levels, shares look overvalued.

By 2030, electric vehicles (EVs) will be 30% of total autos sold globally, up from 3% in 2020. By 2025, EVs will become cheaper for entry-level cars and reach performance parity with internal combustion engines (ICEs). With sufficient charging infrastructure being built throughout China, Europe, and the United States, the second half of this decade will see rapid EV adoption. Hybrids will reach cost parity for light trucks. As a result, EVs and hybrids will be two of every three autos sold globally by 2030.

U.K.-based Victrex is the creator of and dominant market leader in polyetheretherketone, or PEEK, a lightweight ultra-high-performance plastic that suits the most demanding applications in transportation, oil and gas, and electronics. It serves these industrial markets through its industrials segment, which accounts for around 80% of sales. The company has broadened applications of PEEK to healthcare, notably implantable spinal fusion cages. Healthcare sales are housed in the medical segment, which contributes the other 20% of sales, but has higher margins than the industrial business.

Narrow-moat Victrex reported first-half underlying profit before tax of GBP 47 million, down 10% over 2020 but moderately above the Visible Alpha consensus. Demand momentum appears to be strong in most end markets and the second-half comparable is not challenging. However, management's tone on the second half was relatively cool, citing restocking in the first half and a slower-than-expected recovery in medical. With shares up 10% intraday, the market has apparently decided that management is too conservative. We agree and will likely increase our estimates, but not materially enough to warrant a 10% lift to our fair value estimate. At current levels, the shares look overvalued.