Momentum sustained

1Q results from Neodecortech (NDT) confirmed that the positive momentum in the second half of last year continued into 2021. Revenue was up 19% overall and EBITDA came in at €5.1m, vs. a comparable €2.7m in 1Q’20. Last year caught only the very beginning of the pandemic. 2Q has continued in a similar vein, and margins are holding up, despite rises in key raw material prices. We are not changing our forecasts materially but we are more confident that they can be reached or beaten.

• 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 NDT’s decorative papers. Sales to Italy and the rest of Europe were very strong in 1Q, while overseas saw no growth. The energy division also saw rising sales but at a lower rate (+5%).
• Valuation: NDT is trading cheaply on our forecast multiples. At a ca.30% EV/EBITDA discount to its nearest quoted peers for both FY’21E and FY’22E, the market is more than adequately discounting for its smaller scale and lower market liquidity. Our central DCF valuation comes out at €5.58 per share, up from €5.45.
• 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 rises will not help, and the possibility of more direct competition from Chinese manufacturers is a general concern 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 increasing investment in further improvements in its machinery and new technologies. As familiarity with the company grows (its STAR listing is helping here), 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. The very strong performance since the worst of COVID-19 shows what a resilient and high-quality business it is.