In our view chemicals firm Victrex’ (VCT) current valuation is attractive and a great opportunity for investors to snap up the shares.
Over the past 30 years the FTSE 250 company has delivered solid earnings growth on a long-term view. The shares are trading a long way below their 30-year average price to earnings ratio suggesting there is considerable scope for upside.
WHAT IS VICTREX?
Victrex is a world leader in the manufacturer of PEEK (polyether ether ketone) and PAEK-based polymer solutions (polyaryletherketones) with a 60% market share.
PEEK is a thermoplastic (a tough, temperature-resistant engineering plastic) used in a broad range of markets including automotive, aerospace, electronics, energy, industrial and medicine.
Victrex was the first company to commercialise thermoplastic since its invention over 40 years ago – it is used as a metal replacement in transport, industry, electronics, and medical devices. The company plays a key role helping clients at every stage of component development from concept to commercialisation and helps support supply chains in the industries it serves.
The FTSE 250 company produces medical components, pipes, films, fibres, aerospace parts. It is also a pioneer in new grades of polymer like LMPAEK for composites and additive manufacturing or 3D printing. The company has growth opportunities in the energy sector where it has thermoplastic alternatives to steel pipes for subsea usage and in the medical sphere where it is moving into knee implants.
Victrex hopes more than 30% of group revenue will be from medical by 2032 up from 18% in full year 2024.
WHY HAVE THE SHARES BEEN UNDER PRESSSURE?
Even for a company with a specialist focus like Victrex, this industry has ups and downs as it is typically highly dependent on changes within the global economy and is reliant on the cost of basic commodities.
It therefore comes as no surprise that Victrex is prone to fluctuations in profitability and share price movements.
The company has seen its shares tumble 40% over the past year. It reported a 5% year-on-year fall in full year 2024 revenue to £291 million (albeit in line with company-compiled consensus) due to foreign exchange headwinds. The company has struggled with inflating costs in its supply chain, an extended period of heavy investment and capacity problems.
The knock-on effect of president Donald Trump’s tariffs on Victrex has yet to be seen but reassuringly the company has been working to get ahead of any issues – having been affected by Trump’s trade policy during his first term.
WHAT NEXT?
In a first-half results on 12 May the company reported a 5% rise in group revenue to £145.9 million for the six months ending 31 March.
Group sales volume of 2,018 tonnes was up 16% compared to 1,737 tonnes to last year and the company upgraded its full year 2025 volume guidance.
These results show that the company is navigating uncertainty, and management has a plan in place to tackle foreign exchange headwinds – hedging some of its foreign currency exposure. Management has cost controls in place which are keeping underlying operating overheads broadly flat excluding wage inflation.
Cash generated from operations was ahead of the prior year at £34.6 million, the company said, ‘as a result, and with lower capital expenditure, underlying operating cash conversion was 128%’. The company is coming off a period of pretty heavy capital spending which has included building out its capabilities in China to strengthen in-country supply chains.
With this capex programme rolling off, and the company enjoying a strong balance sheet with modest net debt of £40.7 million, cash flow can be returned to shareholders and the shares offer a generous yield of nearly 7.5% based on current forecasts.
POTENTIAL RISKS
There are risks involved in investing in Victrex. As previously discussed, the group’s exposure to cyclical sectors such as aerospace and automotive—known for their volatility—could present challenges in forecasting sales growth over the medium term. Additionally, competition may intensify due to unexpectedly aggressive pricing strategies by competitors or the introduction of more cost-effective alternatives to PEEK.
Medical volumes may fail to realise their long-term growth potential, which would affect Victrex’ business model and hinder its ability to generate shareholder value.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
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