Chemicals group Elementis (ELM) intends to boost the size of its personal care business with the $360m acquisition of SummitReheis. The company says that the deal will offer a strong position in the antiperspirant market with Elementis expecting to materially deliver profit and free cash flow in the current financial year.
That's got the share price jumping more than 8% to 297.4p, although confirmation that a possible special dividend this year remains on the cards will not have been missed by investors.
Elementis says that adding SummitReheis to its existing personal care arm will create a $200m a year annual sales business.
For the year to 31 December, SummitReheis is anticipated to report revenue of $134m and underlying EBITDA (earnings before interest, tax, depreciation and amortisation) of approximately $28m.
SummitReheis’ antiperspirant unit is the global leader in ingredients manufacturing, with ties to firms in the Americas, Europe and Asia.
James Tetley, analyst at broker N+1 Singer, usefully points out that personal care represents 30% of Elementis' operating profit, reported at £47.1m in the first half this year.
Elementis remains one of the broker’s Best Ideas for 2017, a view unlikely to change in the near-term given Tetley's 7% hike to earnings for the year to 31 December 2017. He's now anticipating 18.2p of earnings per share this year, implying a price to earnings (PE) multiple of 16.3. The sector average stands at 17.9.
The acquisition will be funded from cash resources and debt facilities of $475m.
