Yule Catto & Co. slumped the most in almost 23 years after the U.K. specialty chemicals maker said demand wilted in Europe and North America, and that competition will crimp synthetic-latex profits for longer than it expected.
Business from construction-related companies is “the weakest area” in Europe and North America, and price cutting by a rival in Asia has clipped Yule Catto’s profitability from nitrile latex used in tires and medical gloves, the company said today in a statement. The stock dropped 22 percent to 138 pence, the biggest decline since at least 1989 and the worst performance on the FTSE All-Share Index.
Yule Catto’s forecast drove chemical stocks lower, with Clariant AG (CLN), which bought catalyst maker Sued-Chemie last year, falling 4 percent to the lowest price in six months in Zurich. Cookson Group Plc (CKSN) declined 1.2 percent in London and Lanxess AG (LXS), a maker of synthetic rubbers and polymers for the tire industry, dropped 2.6 percent in Frankfurt.
Falling chemical demand historically precedes drops in industrial output and broader economic slowdowns by three to eight months, according to the American Chemistry Council. The council’s Chemical Activity Barometer in June trailed behind the Federal Reserve’s Industrial Production index by the most since March 2009.
Yule’s prediction that weakness in nitrile markets will continue into next year “seems to undermine the group’s central investment case -- the exposure to higher-growth emerging markets,” James Tetley, an analyst at N+1 Brewin in London, said in a note. It also “calls into question its product differentiation and market positioning,” he said.
The slowdown follows Yule Catto’s $592.8 million purchase of PolymerLatex last year from TowerBrook Capital Partners, the U.K. company’s largest acquisition.
Tetley lowered his recommendation on Yule Catto shares to reduce from add and cut his price target to 160 pence from 255 pence. He is one of only two analysts among the 13 who report their advice to Bloomberg who advises selling the shares.
Lower volumes have been offset by “margin management” and cost savings from the integration of PolymerLatex, Harlow, England-based Yule Catto said. The company reiterated that it intends to boost pretax profit before one-time items this year.
“More certainty in Yule Catto’s end-markets will be required for the shares to re-rate,” Gunther Zechmann, an analyst at Barclays in London, said in a note. “It can continue to generate significant returns longer term, when market conditions recover.”
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