Synthomer PLC Tantalises Investors With Prospect Of Special Dividends

LondonDespite unveiling a 7% drop in underlying pre-tax profit, shares of specialty chemical maker Synthomer (LSE: SYNT) jumped by as much as 8% to 225p in early trade, after the announcement of substantial boost to the interim dividend and revealing that excess capital could be returned to shareholders.

Synthomer’s cash margins have firmed since this time last year and, despite weakness in the nitrile business due to stiff competition between glove manufacturers, impressive cash generation helped reduce net debt from £134m to £115m.

It is among the company’s objectives to maintain an efficient balance sheet — with the net debt to EBITDA ratio staying under 2x for a “sustained” period — and when the leverage ratio looks set to fall below 1x a special dividend, in accordance with the board’s dividend policy, will be considered.

Synthomer has operations all over the globe, and strong demand in Europe and North America helped to offset difficulties in Asia. “We expect the improved demand in Europe to continue through the remainder of the year,” the chief executive, Adrian Whitfield, commented.

Overall group volumes were up 2% in the six months to 30 June 2014, while operating profit fell by 9% to £51m due to weak results in Asia and an adverse currency translation effect of £2.5m. Underlying earnings per share decreased to 10p, down 7% on the prior year.

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Mark Stones has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.