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It has been a troublesome few years for FTSE 250 agency Victrex (LSE: VCT).
The polymers specialist has seen its share value fall by 27% in a single yr. Over 5 years, the decline has been 58%.
The factor is, I feel Victrex has rather a lot to love about it as a enterprise.
If that turns into clearer once more this yr, allaying some Metropolis fears about dangers the enterprise faces, I feel the FTSE 250 share may advantage the next value.
To start out, I’ll clarify what I like about Victrex (and why I’m a shareholder in it).
A Warren Buffett-like moat
The principle purpose I like Victrex is that it has the form of enterprise “moat” billionaire Warren Buffett typically enthuses about.
It makes excessive efficiency polymers which are utilized in all types of purposes the place security is essential, from aerospace to cars. That implies that high quality is a paramount consideration for patrons, giving suppliers pricing energy.
On prime of that, Victrex makes a lot of proprietary polymer merchandise that successfully imply it’s the solely alternative for patrons with sure particular wants. Once more, that provides it pricing energy.
In flip, that has helped the corporate generate sizeable extra money to pay dividends. The present dividend yield is 5.8%.
An more and more powerful buying and selling setting
To this point, so good.
For a very long time, that enterprise mannequin was akin to a license to print cash.
Victrex has had a tough few years which have referred to as into query whether or not it may maintain its previous success (and revenue margins). Put up-tax revenue final yr was 77% decrease than two years earlier than. Revenues in the identical interval slid by 12%.
As industrial purposes evolve, a key threat going through Victrex – and it’s one I proceed to see – is whether or not demand for the kinds of polymers it makes will keep sturdy, or decline.
Indicators of a possible turnaround
So it’s comprehensible that traders have been cheered by some components of the corporate’s full-year outcomes, revealed final month. Sure, revenues earlier than tax have been down and pre-tax revenue was down badly.
However there was, no less than, quantity development.
Among the latest earnings drops may be pinned on the startup prices of recent manufacturing amenities in China. Now they’re operational, hopefully they will flip from a loss centre to a revenue centre for the FTSE 250 agency (although one threat I see is mental property leakage).
What concerning the quantity story?
Larger volumes however decrease revenues sometimes level to both a change within the mixture of merchandise bought, or declining pricing energy. The corporate pinned this on alternate charges and weaker efficiency in its greater margin medical division, affecting its general gross sales combine.
So, if the product combine will get again to a extra regular one (with stronger contribution from medical merchandise) and volumes proceed to develop, 2025 may see each revenues and income develop at Victrex.
If that occurs, I feel it could possibly be excellent news for the Victrex share value. Having taken some income following final month’s announcement, I proceed to carry my long-term Victrex stake for now.