Electrifying your portfolio & chemical stock struggles: Companies and Markets Show
The Companies & Markets Show covers three main topics: the recovery of precision electronics companies supplying the semiconductor industry (Renishaw, Oxford Instruments, XP Power), a broad examination of electrification as a defining investment theme of the 21st century, and a turnaround analysis of specialty chemicals company Synthoma, which is navigating heavy debt while ironically benefiting from the closure of the Strait of Hormuz.
Summary
The episode opens against the backdrop of an ongoing Strait of Hormuz closure, which is beginning to unsettle risk assets after weeks of relative calm. Three main segments follow.
In the first segment, Mike Fahey discusses the belated recovery of precision engineering and electronics component companies — Renishaw (RSW), Oxford Instruments (XIQ), and XP Power (XPP) — that supply the semiconductor industry. These companies languished for years due to post-pandemic demand cycles: a chip boom during COVID was followed by oversupply as consumer electronics demand normalized and car manufacturers sat on excess inventory. Only now, as data center buildout accelerates and chip stockpiles are depleted, is demand feeding back down the supply chain to these component makers. Renishaw issued a short but meaningful upgrade, lifting adjusted pre-tax profit guidance to around £560 million from a low-end estimate of £130 million, with Deutsche Bank forecasting 9% EPS growth this year and 7% next. XP Power, which has more direct exposure to companies like ASML and TSMC through power regulation components, reported a 48% year-on-year order increase and 38% quarter-on-quarter growth. Fahey flags XP Power as his top pick, noting that overhanging issues — an IP dispute loss, closure of its China factory (due to US restrictions on Chinese involvement in chip supply chains), and a rejected takeover bid from Advanced Energy Industries — are largely resolved, with a new Malaysian plant now operational. TT Electronics is mentioned but passed over due to governance chaos, multiple rejected bids, declining revenues, and factory closures. On the Hormuz risk, helium supply is identified as a specific vulnerability: Qatar supplies 65% of South Korea's helium and 69% of Taiwan's, both critical chip-making nations. HSBC notes helium represents only ~2% of advanced chip manufacturing costs, and both countries hold 3–6 months of reserves, but helium has no substitute, making prolonged closure a potential cliff-edge risk.
In the second segment, Alex Newman presents a sweeping analysis of electrification as an investment theme. He argues that electricity has been the defining technology for over a century — from the telegraph to turbines — but that modern electrification is now entering its most transformative phase. Renewables supplied all global electricity demand growth last year and are beginning to displace coal in China. Newman distinguishes between the incumbent 'rentier' energy model (fossil fuels priced on extraction scarcity) and the 'manufactured goods' model of renewables and batteries, which are deflationary and improve with scale. He warns that investors anchored to the incumbent system's market share metrics systematically underestimate the electrification opportunity. In the UK, grid electricity demand has actually fallen since 2012 (from ~37GW to ~31-32GW) due to efficiency gains and industrial decline, but Newman argues the trajectory must reverse as more electricity-intensive technologies — EVs, heat pumps — penetrate the market. Grid connection delays are identified as a major bottleneck: Goodwin PLC has planning permission for a solar plant near Stoke but cannot connect until 2037 due to substation upgrade queues; Midlands logistics companies face 15-year connection waits. Newman highlights beneficiaries including SSE, National Grid, and Balfour Beatty. CATL is discussed as the emblematic winner: holding ~40% of the global battery market, it recently raised ~$4 billion via a Hong Kong secondary listing and is developing batteries promising 1,500km EV range on a six-minute charge, which Newman argues will resolve consumer range anxiety and accelerate mass EV adoption.
In the third segment, Gillian Hoffman analyzes Synthoma (SYNT), a specialty polymers and chemicals company. Synthoma produces architectural coatings, adhesives, tapes, labels, packaging, and medical polymers, employing ~3,800 staff globally. It has been struggling under debt accumulated largely from its 2021 acquisition of Eastman's Adhesive business at cyclical peak valuations, pushing net debt above £1 billion at its worst (now ~£575 million). A new refinancing extends covenant deadlines to 2029 at a 5.25x EBITDA-to-debt ratio, triggering a 16% share price rise on results day. However, senior unsecured bonds are still yielding ~24% — firmly junk territory — signaling deep skepticism from bond markets despite equity optimism. Operationally, its Adhesive Solutions division shows improvement with margins rising ~40 basis points to ~11.6%. Ironically, the Hormuz closure is providing a short-term tailwind: Asian competitors who ship polymers via Hormuz and Suez can no longer supply European customers, so Synthoma is capturing volume in markets like MBR latex (used in latex gloves). However, Hoffman cautions that prolonged conflict will raise energy prices and thus polymer input costs, while also threatening demand destruction from Synthoma's construction-sector customers, particularly in the already-weak Eurozone. The cyclical lag means any demand collapse may not show up in results for another two quarters.
Key Insights
- Mike Fahey argues that XP Power is the most attractive pick among precision electronics companies because its key overhanging risks — an IP dispute loss, closure of its China factory due to US chip supply chain restrictions, and a rejected M&A bid — have largely been resolved, even as the stock has already doubled year-to-date.
- Fahey notes that South Korea sources 65% of its helium from Qatar and Taiwan sources 69%, making both critical chip-manufacturing nations acutely exposed to prolonged Hormuz closure, despite HSBC estimating helium at only ~2% of advanced chip manufacturing costs and current stockpiles of 3–6 months providing a buffer.
- Alex Newman argues that investors systematically misread the electrification opportunity because they apply the incumbent fossil fuel 'rentier' model — where value accrues to asset owners through price inflation — to renewable energy, which instead operates as a manufactured goods model that is inherently deflationary and competitive.
- Newman contends that UK grid electricity demand has actually fallen since 2012 (from ~37GW to ~31-32GW) due to efficiency gains and industrial decline, but argues the trend must reverse because incoming technologies like EVs and heat pumps are more electricity-intensive than what they replace.
- Newman highlights that Goodwin PLC, a 143-year-old engineer, has already installed 6.7 megawatts of solar across its operations but cannot connect a planned additional 4.3 megawatt solar plant until 2037 due to National Grid substation upgrade queues — illustrating that planning permission and grid connection are entirely separate and often misaligned obstacles.
- Gillian Hoffman notes that Synthoma's senior unsecured bonds are trading at a yield of approximately 24% despite a refinancing that pushed covenants to 2029 and a 16% equity rally on results day, arguing that the bond market's lack of reaction tells the opposite story from equity investors and signals continued structural skepticism about the company's viability.
- Hoffman explains that the Hormuz closure is providing Synthoma with an ironic short-term benefit: Asian polymer producers who ship via Hormuz and Suez can no longer reliably supply European customers, pushing those customers to Synthoma as an alternative source and giving it meaningful pricing power, particularly in MBR latex used for medical gloves.
- Newman argues that CATL's development of batteries capable of delivering 1,500km of EV range on a six-minute charge — even if five or more years away — points to a technological trajectory that will resolve the residual consumer anxieties (range and charging time) currently limiting mass EV adoption, making the consumer rather than policy the ultimate driver of electrification.
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