Could this 5.8%-yielding FTSE 250 share storm back in 2025?

It has been a tough few years for FTSE 250 firm Victrex (LSE: VCT).

The polymers specialist has seen its share price fall by 27% in one year. Over five years, the decline has been 58%.

The thing is, I think Victrex has a lot to like about it as a business.

If that becomes clearer again this year, allaying some City fears about risks the business faces, I think the FTSE 250 share could merit a higher price.

To start, I will explain what I like about Victrex (and why I am a shareholder in it).

A Warren Buffett-like moat

The main reason I like Victrex is that it has the sort of business “moat” billionaire Warren Buffett often enthuses about.

It makes high performance polymers that are used in all sorts of applications where safety is crucial, from aerospace to automobiles. That means that quality is a paramount consideration for customers, giving suppliers pricing power.

On top of that, Victrex makes a number of proprietary polymer products that effectively mean it is the only choice for customers with certain specific needs. Again, that gives it pricing power.

In turn, that has helped the company generate sizeable excess cash to pay dividends. The current dividend yield is 5.8%.

An increasingly tough trading environment

So far, so good.

For a long time, that business model was akin to a license to print money.

Victrex has had a difficult few years that have called into question whether it can sustain its past success (and profit margins). Post-tax profit last year was 77% lower than two years before. Revenues in the same period slid by 12%.

As industrial applications evolve, a key risk facing Victrex – and it is one I continue to see – is whether demand for the sorts of polymers it makes will stay strong, or decline.

Signs of a potential turnaround

So it is understandable that investors were cheered by some elements of the company’s full-year results, published last month. Yes, revenues before tax were down and pre-tax profit was down badly.

But there was, at least, volume growth.

Some of the recent earnings drops can be pinned on the startup costs of new manufacturing facilities in China. Now they are operational, hopefully they can turn from a loss centre to a profit centre for the FTSE 250 firm (though one risk I see is intellectual property leakage).

What about the volume story?

Higher volumes but lower revenues typically point to either a change in the mix of products sold, or declining pricing power. The company pinned this on exchange rates and weaker performance in its higher margin medical division, affecting its overall sales mix.

So, if the product mix gets back to a more normal one (with stronger contribution from medical products) and volumes continue to grow, 2025 could see both revenues and profits grow at Victrex.

If that happens, I think it could be good news for the Victrex share price. Having taken some profits following last month’s announcement, I continue to hold my long-term Victrex stake for now.

The post Could this 5.8%-yielding FTSE 250 share storm back in 2025? appeared first on The Motley Fool UK.

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report — 5 Shares for the Future of Energy — and discover:

Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
How to potentially get paid by the weather
Electric Vehicles’ secret backdoor opportunity
One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

More reading

C Ruane has positions in Victrex Plc. The Motley Fool UK has recommended Victrex Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.