Shares in specialty chemicals company Elementis plc (LON: ELM) (LSE: ELM.L) have fallen by 12% today after it released a disappointing pre-close trading update.
Notably, the company’s Chromium segment is experiencing challenging trading conditions outside of North America due in part to currency weakness against the US dollar, particularly in Eastern Europe. Due to this, sales and margins excluding North America for the full-year are now expected to be materially lower than last year, which means that overall profitability for the year is now expected to be below the level previously anticipated by the market.
This has caused market sentiment towards Elementis to weaken, although the performance of the company’s Chromium segment in North America in the first six months of the year is expected to be in-line with that of the previous year.
Further, Elementis’ Specialty Products segment has continued to make progress. Sales in personal care have maintained their strong growth drive due in part to new product releases and expansion into new geographies, while in coatings, sales in Asia Pacific have resumed their growth trend after the destocking which took place in China in Q2 2015. In Elementis’ oilfield segment, sales have been relatively resilient even though there has been a well-documented downturn experienced in the last year.
Elementis presently trades on a P/E of 15.3 even after today’s share price fall. For many investors, this may be a rather rich valuation – particularly with the company having downgraded its earnings forecasts and being in the middle of a very difficult period. Although it now yields 5.4%, dividends may be somewhat uncertain due to the difficult outlook which the company faces.
With Elementis expected to report a fall in net profit this year, its valuation could continue to fall in my view.
The author does not own shares in Elementis at the time of writing.