Yule Catto hit by weakening demand in Asia

BRITISH chemicals maker Yule Catto saw its share price plunge yesterday after it announced that it expects its business to be hurt by a volatile euro and weakening demand in Asia.

Yule Catto shares plummeted by 21.4 per cent making them one of the biggest percentage losers on the London Stock Exchange.

The news undermines the group’s central investment case, N+1 Brewin analyst James Tetley said and downgraded the stock to “reduce” from “add” following the results.

“(It) calls into question its product differentiation and market positioning,” he added.

Yule Catto said in March that it expected sales from emerging markets to offset low growth in developed markets.

However, weak demand for synthetic rubber component nitrile in the emerging markets and recent capacity additions have pressured prices, the company said. It expects demand to remain weak until the next year.

“This will substantially lower operating profit in our Asia business segment,” the company said.

Nitrile is a speciality chemical which is used in the manufacturing of latex – a very fine quality of rubber. Yule Catto – whose chemicals are used by the adhesive, textile, paper and pharmaceutical industries – also said that it expected fluctuations in the euro to cut operating profit by about £5m.

However, the company still forecast growth in its underlying full-year pretax profit.

Yule Catto’s fundamentals remained intact and it could continue to generate significant returns in the long term, Barclays Capital’s Gunther Zechmann said in a note.