Synthomer delivers profit warning on weak European demand

Essex-based chemicals business Synthomer delivered a profit warning to investors on Tuesday, saying that the demand momentum in Europe seen earlier in the year had tailed off.

The FTSE 250 company, which develops polymers for consumer products, now expected full-year pre-tax profit to be "slightly below current consensus", causing shares to sink in early deals.

Company-compiled consensus for the 2014 financial year currently stands at £87.8m (range of £81.3m-90.3m), compared with £90.1m in 2013.

"We are cautious about performance in Europe given recent economic developments, and should this impact demand further than currently anticipated in the fourth quarter, then profit before-tax is likely to be around the lower end of the current consensus range," it said.

At the half-year stage, reported in August, Synthomer had reported "firmer demand" in the ENA business, particularly in construction.

"Unfortunately this improved demand trend has not persisted through the third quarter and volumes, excluding business that we deliberately exited in compounds as reported in half one, were down 3% in ENA," the group said.

On a local currency basis, year-to-date operating profits by the end of the third quarter were slightly lower than last year.

Volumes in the division which covers Asia and the rest of the world improved by 1.3%.

Broker Canaccord lowered its target price for Synthomer's shares following the statement by 9% to 258p.

Nevertheless, analyst Paul Satchell said he remains convinced that the stock offers "deep value" mainly thanks for the growth potential for its business in Asia.

He highlighted that the company issued the trading update a week ahead of the scheduled date.

By 08:08 on Tuesday, the stock was down 10% at 191.5p.