Reassuringly robust

Neodecortech (NDT) shut its main plants for several weeks in March/April, but has traded strongly since reopening. We have cut our 2020 forecasts significantly, but see 2021 bouncing back close to 2019 levels. NDT trades at a ca.36% EV/EBITDA 2021E discount to its nearest peers – an 8% increase since February. We would expect this to narrow, aided by the move to the Main Market, which was completed in May.

• Strategy: NDT uses its vertical integration model to ensure continuity of affordable supply and flexibility in responding to an ever-changing market place. Margin efficiencies are coming through as plant capacity grows, and as new designs and products leverage the company’s Italian design heritage.
• Trading: Circumstances remain challenging, but trading has bounced back sharply from the 1H closures. Input prices remain subdued, and NDT’s wide range of products and new plastic-based films should help sales to regain their former levels, assuming there is no further major disruption from COVID-19.
• Valuation: NDT is trading cheaply on our forecast multiples. At a ca.36% 2021E EV/EBITDA discount to its nearest quoted peers, the market is more than adequately discounting for its smaller scale and lack of secondary market liquidity. Our central DCF valuation comes out at €5.13 per share (see p. 22).
• Risks: The key risk in the immediate term is the economic outlook for the construction business generally, but in western Europe in particular. Raw material price fluctuations and the possibility of more direct competition from Chinese manufacturers are also general concerns in the medium term.
• Investment summary: NDT specialises in high-quality décor paper and plastic film, and has strong relationships with its customers. It is looking to invest in further improvements in its machinery and new technologies. It listed on the Italian AIM market in September 2017, and it moved to the Main Market in May this year. As familiarity grows and the new products comprise a larger proportion of the business, we would expect the valuation discount to continue to narrow.