Very strong 2021

FY’21 results from Neodecortech (NDT) confirmed the trend of the first half. Total revenue was up 37% vs. FY’20, but, more tellingly, it was up 33% vs. pre-COVID FY’19, demonstrating the strength of NDT’s new products and its European markets. Growth has continued in the first two months of 2022 but at a lower rate. Our revised forecasts reflect the difficulties of raw material price increases and the unknown impacts of the Ukraine conflict.

• Trading: Decorative paper, bolstered by its new higher-margin products – EOS and PPLF – saw revenue up 50%. Cartiere, the paper business, also saw strong revenue gains (nearly 40%) compared with both 2020 and 2019. The energy division booked revenues up 20%.
• Margins: The overall gross margin fell from 23.6% to 21% and the EBITDA margin from 11.1% to 10.0%. Not all higher input costs were passed on to end-customers, notably in the second half. There is strong upward pressure on most raw material prices and energy costs. We are expecting broadly flat margins for the next two years.
• Valuation: Having performed strongly, NDT has, along with the market, had a poor 2022 YTD. It appears cheap on our forecast multiples, at a ca.25% 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 comes out at €6.78 per share, almost unchanged from September’s €6.74.
• Risks: The key risk in the immediate term is the economy slowing down after a very strong bounce and with geopolitical risks looming larger than normal. 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 (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.