Strong FY’20 results

Neodecortech (NDT) announced that it had significantly outperformed its baseline projection from last summer. Trading was driven by a focus on home furnishings and new products, with turnover down only 4%, despite the closures last spring. EBITDA was a very creditable €14.6m (ahead of our €14m forecast), and net debt actually fell marginally to €40m. These figures, plus the €0.09 dividend, show the strength of NDT’s business and the value of its investment in new products.

• 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: Trading has been helped by the new emphasis on working from home, and this has pushed demand for furniture – the main outlet for its decorative papers. Sales to Italy were up for the year, as they were to America; the rest of Europe saw an 8% decline. The Energy division also saw rising sales (+8%).
• Valuation: NDT is trading cheaply on our forecast multiples. At a ca.35% 2022E 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 €5.45 per share.
• 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 increase investment in further improvements in its machinery and new technologies. As familiarity grows and the new products comprise a larger proportion of the business, we would expect the valuation discount to continue to narrow. The business is operating at full capacity currently, with good forecast orders for the first quarter. The very strong performance in 2H’20, despite COVID-19, shows what a resilient and high-quality business it is.