Yule Catto & Co. (YULC), the world’s largest producer of nitrile latex, climbed the most in two months in London trading after profit beat estimates and management pledged to pay a bigger-than-estimated dividend.
Yule Catto’s stock increased as much as 7.3 percent, the most since June 29. First-half pretax profit of 56 million pounds ($88 million) beat the average 53.9 million-pound estimate from a survey of three analysts by Bloomberg. Shareholders will receive a 2.2 pence payout versus a Bloomberg estimate of 1.5 pence.
“The balance of the company is trading very well in, let’s be honest, difficult circumstances,” Chief Executive Officer Adrian Whitfield said in a phone interview. “Most people have to look at these results and say they are slightly stronger than we thought. This is a good first step in convincing people that the business remains robust.”
The stock’s gain is a sign the Harlow, England-based company is regaining investor confidence after announcing a threat to its Asian market share in June. Expansion in styrene butadiene and dispersion businesses, following the $592 million acquisition of PolymerLatex in 2010, will provide a buffer for the slowdown in nitrile latex, used in tires and medical gloves, as demand remains resilient for products such as high- performance adhesives.
The company faces “no meaningful” recovery in nitrile latex markets in Asia over the next 12 to 18 months as overcapacity persists. Excess capacity is equal to about 60,000 to 100,000 tons, following the arrival of a new entrant to the nitrile latex industry supplying the medical glove market, Whitfield said. The market accounts for 14 percent of Yule Catto’s business.
Whitfield said some of the lost market share will be foregone as part of its strategy to maintain margins rather than pursue volumes by lowering prices. The industry remains in its infancy and Yule Catto will be bringing new grades of the latex through, as well as improved manufacturing processes, Whitfield said.
The U.K. company reiterated its target for 96 million pounds in pretax profit this year and a dividend of 5.5 pence for 2015.
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