Elementis * (360) | Buy | From complexity to quality

Research evidence excerpt

Elementis * (360) | Buy | From complexity to quality

ently accounts for c. 20% of the top line. EV/IC 1.1 1.0 0.9

Elementis’s products typically represent less than 5% of customers’ total

manufacturing costs, yet are critical to product performance. In addition, switching

suppliers is risky, costly, and time-consuming for customers. Therefore, once a

formulation is validated, customer stickiness is high and pricing power is strong.

In our view, the market underappreciates Elementis’s recent transformation. The

stock still trades in line with generalist chemical peers despite margins and ROCE

that now rank among the top tier of the specialty chemicals universe.

We initiate coverage with a Buy rating and TP of 205p. This is based on a DCF (WACC:

11.3%, g: 1.5%), a SOP (with Coatings at an EV/EBIT of 10x and Personal Care at

14x), and a peer-based FY 2027E P/E of 16.4x (with specialty chemical players only).

Research Framework

Investment case Valuation methodology

Elementis has refocused on high value-added activities, which We value Elementis using a DCF (WACC: 11.33%, g: 1.5%), a peer-

should boost its margins and ROCE. based multiple (FY 27E P/E: 16.4x) and a SOTP (Coatings at an FY

In the short term, volumes should be supported by the recovery 27E EV/EBIT of 10x and Personal Care at 14x).

in the construction sector (through the Coatings division). Risks to our rating

Over the longer term, key growth drivers include Increased competition from chemical manufacturers, with the

premiumisation in cosmetics and increasing formulation development of synthetic alternatives that could offer better

complexity across industrial applications. performance at a lower cost.

Catalysts The discovery of a mine with deposits of comparable or superior