May this 5.8%-yielding FTSE 250 share storm again in 2025?

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

The polymers specialist has seen its share worth fall by 27% in a single 12 months. Over 5 years, the decline has been 58%.

The factor is, I feel Victrex has quite a bit to love about it as a enterprise.

If that turns into clearer once more this 12 months, allaying some Metropolis fears about dangers the enterprise faces, I feel the FTSE 250 share may advantage the next worth.

To start out, I’ll clarify what I like about Victrex (and why I’m a shareholder in it).

A Warren Buffett-like moat

The primary purpose I like Victrex is that it has the type of enterprise “moat” billionaire Warren Buffett typically enthuses about.

It makes excessive efficiency polymers which might be utilized in all kinds of functions the place security is essential, from aerospace to vehicles. That implies that high quality is a paramount consideration for purchasers, giving suppliers pricing energy.

On prime of that, Victrex makes numerous proprietary polymer merchandise that successfully imply it’s the solely selection for purchasers with sure particular wants. Once more, that provides it pricing energy.

In flip, that has helped the corporate generate sizeable extra money to pay dividends. The present dividend yield is 5.8%.

An more and more robust buying and selling surroundings

Up to now, so good.

For a very long time, that enterprise mannequin was akin to a license to print cash.

Victrex has had a troublesome few years which have known as into query whether or not it may maintain its previous success (and profit margins). Publish-tax revenue final 12 months was 77% decrease than two years earlier than. Revenues in the identical interval slid by 12%.

As industrial functions evolve, a key threat dealing with Victrex – and it’s one I proceed to see – is whether or not demand for the types of polymers it makes will keep sturdy, or decline.

Indicators of a possible turnaround

So it’s comprehensible that traders had been cheered by some parts of the corporate’s full-year outcomes, revealed final month. Sure, revenues earlier than tax had been down and pre-tax revenue was down badly.

However there was, at the very least, quantity progress.

A few of the latest earnings drops will be pinned on the startup prices of latest manufacturing services in China. Now they’re operational, hopefully they will flip from a loss centre to a revenue centre for the FTSE 250 agency (although one threat I see is mental property leakage).

What concerning the quantity story?

Increased volumes however decrease revenues usually level to both a change within the mixture of merchandise offered, or declining pricing energy. The corporate pinned this on alternate charges and weaker efficiency in its greater margin medical division, affecting its total gross sales combine.

So, if the product combine will get again to a extra regular one (with stronger contribution from medical merchandise) and volumes proceed to develop, 2025 may see each revenues and income develop at Victrex.

If that occurs, I feel it may very well be excellent news for the Victrex share worth. Having taken some income following final month’s announcement, I proceed to carry my long-term Victrex stake for now.