Bright 1H’22, cloudy outlook

1H’22 results from Neodecortech (NDT) continued the trend of FY’21. Total revenue was up 20% compared with 1H’21, to a record €103m, demonstrating the continued strength of NDT’s new products and its European markets. The increases in energy prices and the impact of the Ukraine conflict have caused a reduction in the order backlog at the beginning of 2H’22, but the company remains confident of maintaining operating and financial results roughly in line with FY’21.

• Trading: Decorative paper, bolstered by its new, higher-margin products – EOS and PPLF – saw revenue up 14%. Cartiere, the paper business, also saw strong revenue gains (+40%). The energy division booked revenues down 7%. Growth came mostly from Italy (+32%) and Europe (=11%). The US was also strong.
• Margins: Materials as a percentage of revenues rose from 59% to 69%, but the EBITDA margin only slipped from 11.9% to 11.0%, as staff costs were kept stable. Not all higher input costs have yet been passed on to end customers. There remains strong upward pressure on most raw material prices and energy costs. We are expecting broadly flat EBITDA margins for the next two years.
• Valuation: Having performed strongly in 2021, NDT has, along with the market, had a poor 2022 and is down 25% YTD. It appears cheap on our forecast multiples, at a ca.21% EV/EBITDA discount to its nearest quoted peer (Surteco) for FY’22E, and the market is still over-discounting for its smaller scale, in our view. Our central DCF valuation is €6.04 per share.
• Risks: The key risk in the immediate term is the impact on the economy of the energy crisis. Increasing energy prices squeeze everybody along the value chain. Raw material price rises look here to stay for a while and are sure to have an impact on overall demand, or see margins squeezed.
• Investment summary: NDT specialises in high-quality décor paper and plastic film, and has strong relationships with its customers. It has been increasing investment in further improvements in its machinery and new technologies. As familiarity with the company grows, and as 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, albeit down on the first half. The very strong business performance since the worst of COVID-19 shows what a resilient and high-quality business it is.