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Description: 
Victrex plc. was spun-off from ICI in 1995, and in the meantime has become the world leader in the manufacture and marketing of aromatic ketone polymers (AKPs), under the PEEK brand. Victrex holds the dominant position in this industry with around 3.6kt in annual production. This meets about 80% of worldwide demand. The company is based in Lancashire, UK and 97% of its sales are exported. Its principal customers are in the automotive, aerospace, industrial and healthcare industries.

The PEEK thermosplastic application is a high-value enabler in a number of areas where light weight and inherent strength are critical. In addition to its light weight and strength gain, the product’s advantage lies in the fact that it offers excellent stiffness and dimensional stability under temperature variations. Furthermore, it is easier to process than most lightweight metals and is resistant and insoluble to acids, salts and oil.

Current projects for Victrex’s PEEK product line include the Dreamliner 787 in the aerospace industry, ABS braking systems, vacuum pumps and turbocharger wastegate controls in the car industry. PEEK products are also employed in the exploration and production of oil and gas, and in particular in deepwater oil exploration, where high temperature and pressure exist.

The next wave of growth is therefore likely to come from next generation applications such as the Dreamliner project in the aviation industry. The PEEK product is about 70% lighter than the traditional product, hence allowing savings in fuel costs. It’s estimated that every 45kgs of weight reduced, results in cost savings of USD 100 per year.

Given the ever increasing demand, Victrex is planning to increase production by about 2,9 kt by 2015. The company’s EBIT margins are currently at about +40%; however, it should be able to increase this figure in due course as utilization ratios increase. It’s therefore estimated the EBIT margin should grow to about 42.8% in 2015. 

Strengths and weaknesses analysis / Fundamental analysis:
Strengths: 

• Victrex is the owner of the PEEK trade mark which makes the company a principal beneficiary in the integration of aromatic ketone polymers in products to OEMs. This product is significantly lighter, more resistant, and easier in application than competitor products.
• Given the company’s key technology, it deserves premium valuation,
• With one key product, the company responds to a large range of possible utilizations. 

• Weaknesses:

• The company is a single product entity, so there is no diversification, 
• Victrex holds a relatively high inventory (6 months). This is too much for such an enterprise; it does not appear to focus closely on production efficiency,
• Recent new entrants into the polymer market have reduced Victrex’s margin ratios; this should push the company to offer volume compensation, hence accelerating margin erosion.