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Synthomer upgraded to ‘overweight’ by JP Morgan over exposure to gloves market

Sales of nitrile latex for nitrile gloves for around 20% of 2019 group earnings

Synthomer - Synthomer upgraded to ‘overweight’ by JP Morgan over exposure to gloves market

Synthomer PLC (LON:SYNT) was upgraded to ‘overweight’ from ‘neutral’ by JP Morgan after analysts looked at the company’s exposure to the gloves market.

The polymer, sealant and chemicals specialist sells nitrile latex for nitrile gloves, a business which accounted for around 20% of 2019 group earnings.

READ: Synthomer surges as it upgrades earnings guidance, reinstates interim dividend

The main manufacturer in the sector, Top Glove, recently indicated that their lead time for nitrile gloves has extended significantly to 660 days compared to the average pre-pandemic lead time of 30-40 days.

The US investment bank said gloves demand will moderate as COVID-19 vaccines become widely available, which may not be until the second half of 2021 or 2022, though it is also possible that the greater focus on hygiene might result in structurally higher gloves demand in the future.

“We believe that both the magnitude and the duration of this upside is likely to be better than the market assumes,” analysts noted, while raising the target price to 450p.

“There is a potential of further significant upside as we have significantly discounted the potential tailwind that we calculate from the substantial step-up seen in nitrile prices/spreads due to tight supply.”

Shares rose 2% to 396.8p on Monday morning.

Quick facts: Synthomer

Price: 433.6 GBX

LSE:SYNT
Market: LSE
Market Cap: £1.84 billion
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