Special dividends on the cards at Victrex

A significant tax rate cut is expected to reap rewards for investors if the company has enough cash
Thursday 14 Sep 2017 Author: Lisa-Marie Janes

Investors should be excited about polymer manufacturer Victrex’s (VCT) reduced tax rate as it may result in special dividends going forward.

News the company’s hefty investment in R&D spending has made it eligible for the UK’s Patent Box tax break translates into a cut in the firm’s tax rate from approximately 21% to 12%, which is expected to have a favourable impact on earnings per share (EPS) and cash.

The cash benefit is expected to kick in from 2018 onwards.

Since the announcement on 4 September, shares in the company have rallied nearly 8% to £23.35.

Victrex plans to pay a special dividend if net cash hits £85m by the end of September. Investors won’t find out if it has reached this threshold until full year results are published on 5 December 2017.

Out of the 19 analysts that cover Victrex, 18 are forecasting a special dividend in the year to 30 September 2017.

Berenberg’s Sebastian Bray says there is the likelihood of ‘a special dividend every year’ and upgrades his recommendation to ‘buy’ on the back of the tax cut.


Yield boost from tax break

‘The estimated £13m per annum tax saving from 2018 is likely to raise yields to 5% per annum in the long term,’ comments Bray.

He anticipates a headline uplift to EPS by 10% to 11% and flags that Victrex will have enough cash to fund further bolt-on acquisitions.

Victrex makes high performance polymer products used in a broad range of markets including automotive, aerospace, electronics and medical.

According to Bray it will benefit from an end market that is ‘near universally positive for volumes’, while its innovative pipeline leaves ‘considerable upside to the current price’.

N+1 Singer analyst James Tetley believes the special dividend could be 50p apiece in 2017 and 2018.

Victrex is currently forecast to generate net cash of £105.5m this year, which is anticipated to increase to £109.9m in 2018.

Risk warning

Although it is a cash-generative business with no debt, there are risks. Weakening demand in key markets, including the aerospace and electronics sectors, could impact its ability to be so generous to shareholders.

The company currently trades on a forecast 18.9 times EPS in 2018.

Though this is a high valuation, Bray notes Victrex is among the fastest growing constituents in the UK chemicals sector with a forecast EPS compound annual growth rate of 11% between 2017 and 2019.



‹ Previous2017-09-14Next ›

Important information:

These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell Youinvest.

Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.

Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.

The Shares team

Issue contents

The value of your investments can go down as well as up and you may get back less than you originally invested. We don't offer advice, so it's important you understand the risks, if you're unsure please consult a suitably qualified financial adviser. Tax treatment depends on your individual circumstances and rules may change. Past performance is not a guide to future performance and some investments need to be held for the long term.