Ellis rides the chemical bronco

The Investment Column

For a company ostensibly exposed to the vagaries of the chemical price cycle, Ellis and Everard's track record is second to none. As Jonathan Taylor, chairman of the Bradford-based chemicals distributor, highlighted yesterday, earnings per share and pre-tax profits have almost doubled in the last three years, a period which has seen massive swings in chemicals prices. The share price has responded accordingly, nearly doubling from a low of 153p at the end of 1992 to 282p yesterday.

Results for the year to April once again make impressive reading. Stripping out a one-off pounds 7.7m charge taken on last year's sale of a swimming pool equipment and food and drink hygiene business, pre-tax profits rose 22 per cent to a record pounds 25.6m on turnover 11 per cent up at pounds 571m. Earnings per share were 8 per cent higher at 20p, while the 9.2p payout is a tenth up on last year.

The sales figure includes a maiden pounds 12.7m contribution from acquisitions, including Rhode Island-based George Mann which made Ellis the fifth-largest chemicals distributor in the US. Almost half of profits come from across the pond. All told, five businesses have been bought so far this year and should add pounds 60m to turnover.

Cost control is another key to Ellis's success. Despite the increased level of business, distribution and administrative expenses rose by only 2-3 percentage points, squeezing operating margins higher.

Tight working capital control and strong cash flow also did wonders for the balance sheet. Gearing halved to 16 per cent, despite Ellis splashing out pounds 14m on acquisitions.

However, there are several reasons to believe that the recent rapid rate growth is likely to be a little more restrained going forward.

Having re-focused on chemicals distribution and sold off loss-makers, Ellis increasingly relies on corporate activity to drive profits ahead. While the track record in this area is good, the number of earnings-enhancing deals out there is not infinite.

Second, the commodity chemicals cycle is becoming less volatile, making stock profits more difficult to achieve while raising the prospect of stock losses being incurred.

And pushing up operating margins much further will be difficult in an increasingly competitive environment, especially in the US.

Analysts nudged up their profits forecasts for the full year by about pounds 500,000 to pounds 29.5m, suggesting a forward price-earnings ratio of less than 13 with the shares at 282p. That is an undemanding rating, but probably is an accurate reflection of more subdued prospects going forward. Hold.

Start your day with The Independent, sign up for daily news emails
News
i100
News
Bobbi Kristina Brown, daughter of the late singer Whitney Houston, poses at the premiere of
people
News
people
News
The frequency with which we lie and our ability to get away with it both increase to young adulthood then decline with age, possibly because of changes that occur in the brain
scienceRoger Dobson knows the true story, from Pinocchio to Pollard
Voices
The male menopause: those affected can suffer hot flushes, night sweats, joint pain, low libido, depression and an increase in body fat, among other symptoms
voicesSo the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Life and Style
health
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: DBA Developer - SQL Server

£30000 - £35000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Customer Service Administrator

£13000 - £15000 per annum: Recruitment Genius: Are you passionate about custom...

Recruitment Genius: Dialler Administrator

£22000 - £25000 per annum: Recruitment Genius: Main purpose: Under the directi...

Ashdown Group: Contracts Manager - City of London

£35000 - £37000 per annum + benefits : Ashdown Group: Contracts Manager - City...

Day In a Page

Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

US betrayal of old ally brings limited reward

Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
VIPs gather for opening of second Suez Canal - but doubts linger over security

'A gift from Egypt to the rest of the world'

VIPs gather for opening of second Suez Canal - but is it really needed?
Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
The male menopause and intimations of mortality

Aches, pains and an inkling of mortality

So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

'How can I possibly be on the list with these writers I have idolised?'

Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

Bettany Hughes interview

The historian on how Socrates would have solved Greece's problems
Art of the state: Pyongyang propaganda posters to be exhibited in China

Art of the state

Pyongyang propaganda posters to be exhibited in China
Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

Vegetarian food gets a makeover

Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks
The haunting of Shirley Jackson: Was the gothic author's life really as bleak as her fiction?

The haunting of Shirley Jackson

Was the gothic author's life really as bleak as her fiction?
Bill Granger recipes: Heading off on holiday? Try out our chef's seaside-inspired dishes...

Bill Granger's seaside-inspired recipes

These dishes are so easy to make, our chef is almost embarrassed to call them recipes
Ashes 2015: Tourists are limp, leaderless and distinctly UnAustralian

Tourists are limp, leaderless and distinctly UnAustralian

A woefully out-of-form Michael Clarke embodies his team's fragile Ashes campaign, says Michael Calvin
Blairites be warned, this could be the moment Labour turns into Syriza

Andrew Grice: Inside Westminster

Blairites be warned, this could be the moment Labour turns into Syriza
HMS Victory: The mystery of Britain's worst naval disaster is finally solved - 271 years later

The mystery of Britain's worst naval disaster is finally solved - 271 years later

Exclusive: David Keys reveals the research that finally explains why HMS Victory went down with the loss of 1,100 lives
Survivors of the Nagasaki atomic bomb attack: Japan must not abandon its post-war pacifism

'I saw people so injured you couldn't tell if they were dead or alive'

Nagasaki survivors on why Japan must not abandon its post-war pacifism
Jon Stewart: The voice of Democrats who felt Obama had failed to deliver on his 'Yes We Can' slogan, and the voter he tried hardest to keep onside

The voter Obama tried hardest to keep onside

Outgoing The Daily Show host, Jon Stewart, became the voice of Democrats who felt the President had failed to deliver on his ‘Yes We Can’ slogan. Tim Walker charts the ups and downs of their 10-year relationship on screen