Canaccord raises target price on "compelling" Synthomer proposition

LONDON (ShareCast) - After an arguably mixed first-quarter update from chemicals group Synthomer, analysts at Canaccord Genuity (Other OTC: CCORF - news) reiterated its 'buy' recommendation and set a target price of 370p, a 14% premium to Wednesday's close. First (Other OTC: FSTC - news) -quarter trading update from the FTSE 250 group stated that trading had been in line with expectations, with Europe and North America (ENA) weaker while demand in Asia and rest of World (ARW) remained strong.

But Canaccord noted the "considerable momentum" in Asia, with strong demand and pricing in Asian nitrile putting the division "substantially" ahead of last year.

Looking into the medium and longer term, analyst Harry Philips outlined the significant potential for further special dividends and "exciting opportunities for future growth".

This is based on five factors: a robust core business; a strong balance sheet; a well invested R&D capability delivering new products and innovation; and growing exposure to emerging markets; as well as an M&A strategy outlined by new chief executive Calum MacLean that is planned to at least double the size of the business.

On payouts, in the, albeit unlikely, scenario of there being no acquisitions, the analyst expected the company would pay a special dividend of 8.2p in 2016 and 11.3p in 2017 with a further "special special" if £28m from Malaysian land sales are returned.

"In total, the cash return would be £120m over the period with the true running yield in 2016, for example, at a significant 5.5%." In conclusion, Synthomer has a "compelling" investment proposition, with the potential M&A catalyst and growth profile supported by an alternative return profile as outlined.