ELEMENTIS (ELM) 157.3p

Gain to date: 24.9%

Original entry point: Buy at 125.9p, 18 February 2021

Our positive call on Elementis (ELM) is 25% in the money and we are encouraged by newly appointed non-executive chairman John O’Higgins’ purchase (2 Sep) of £100,996 worth of shares in the FTSE 250 chemicals firm at around 154p each.

As outlined in our original buy thesis in February, Elementis has the right mix of sales divisions to benefit from economic activity picking up again and society reopening.

And given its focus on developing high-quality businesses with enduring competitive advantages in structural growth markets, Elementis has received and rebuffed low-ball takeover offers, so the return of bid excitement shouldn’t be ruled out.

Results for the six months to June were strong, with sales up 17% from the pandemic-impacted comparable half in 2020 to $452 million, driven by improved industrial demand, customer restocking and currency tailwinds. Adjusted pre-tax profit powered 41% higher to $40 million, while net debt was down 8% to $415 million.

The full year outlook was positive, with Elementis remaining confident of delivering ‘an improved financial performance and a reduction in leverage’, which should help pave the way for an eventual return to dividends.

SHARES SAYS: We’re staying positive on Elementis as a play on global economic recovery and for the potential for further bid interest down the track. 

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