Victrex: Underlying Profit Down 16% on Weaker Volumes; Guidance for 2024 Looks Positive

Narrow-moat Victrex reported preliminary results for 2023 with full-year volumes at 3,598 metric tons, down 24% from 2022, mostly driven by destocking and weak demand for the value-added resellers division. Underlying profit before tax of GBP 80 million was also down 16% year on year, hit by the weaker trading environment, but broadly in line with company-compiled consensus. However, the gross margin was up 180 basis points supported by improved pricing and a favorable sales mix. The group is expecting double-digit volume growth for 2024 with a slow start, but recovering in the second half. New midterm targets for revenue were set at 5%-7% CAGR with 8%-10% CAGR potential in the case of commercial success of the company's "mega-programs." Demand is expected to continue to be soft in VAR, electronics, energy, and industrial. Automotive and aerospace remain positive with medical also expected to deliver full-year growth. The stock is trading down around 4% intraday at the time of writing. The midterm base-line scenario is aligned with our forecast, so we don’t expect to make a material change to our GBX 2,000 fair value estimate. At current levels, the shares look undervalued.