This report is published by Research Dynamics, an independent research boutique
Recovery in all divisions to drive overall growth
The top-line performance was weighed by impairment charges
For FY2021, CPH's net sales increased 11.6% YoY to CHF 496.7mn, driven by growth in all three segments. Adjusted for currency factors, topline growth would have amounted to 12.6%. After registering a significant drop in FY2020, the Paper Division reported a 10.2% YoY jump in net sales, whereas Chemistry and the Packaging Divisions registered 5.2% YoY and 29.8% YoY growth, respectively. However, the improvement in topline was offset by the steep rise in the raw material prices and accordingly group EBITDA declined by 53.4% YoY to CHF 25.7mn with corresponding EBITDA margin compressing by 720bps to 5.2% (FY2020: 12.4%). During the year, the company took the impairment charges of CHF 150mn related to its paper production fixed assets. Consequently, the company reported a negative EBIT of CHF 152.7mn (FY2020: CHF 24.7mn). After adjusting for impairment charges, Group EBIT declined to a negative CHF 2.7mn (FY2020: 24.7mn). As result of the impairment, which is non-cash, the company reported a net loss of CHF 151.6mn.
Segmental performance
Paper: In FY2021, net sales of the Paper division increased 10.2% YoY to CHF 230.9mn. During the year, the division sold 15.0% higher paper volumes (505k tons) compared to the previous year, giving an indication of the persisting price pressure. In FY2021, waste paper was exceptionally short in supply, and prices of recovered paper reached historic new highs. This demand-supply imbalance resulted in a certain under-utilization level of the division's paper machines; this unlike FY2020 when the machines were kept idle due to the imposition of lockdown measures. Despite the improvement in top-line, the record high cost for recovered paper pushed the division's EBIT before impairment to a loss of CHF 24.9mn (FY2020: loss of CHF 2.0mn). After accounting for the impairment charge of CHF 150mn, the division's EBIT loss zoomed to CHF 174.9mn.
Packaging: Net sales were up 5.2% YoY to CHF 170.7mn (FY2020: CHF 162.3mn) driven by an improved share of higher-value items in the product portfolio along with an increase in prices. However, the division reported lower volumes in Europe as the protection measures taken to control the spread of the corona virus drastically also reduced the transmission of other infections. Consequently, the demand for over-the-counter medicines also came down and reduced demand for blister pack films too. Nevertheless, the division's strategy to focus on emerging markets started showing effect as Latin America and Asia reported double-digit growth rates. Despite this, and due to the steep increase in raw materials costs, the divisional EBIT decreased drastically to CHF 5.7mn from the CHF 21.6mn of FY2020.
Chemistry: Net sales increased 29.8% YoY to CHF 95.1mn, driven by improved demand in all product segments as facilities were operating at full capacity during the year. The division recorded the historically highest EBIT which jumped ~3x to CHF 15.3mn from last year's EBIT of CHF 4.6mn. The division is set to invest in the additional capacities at its sites in the USA, China, Bosnia and Herzegovina, and Switzerland.
Valuation and conclusion
We value CPH using DCF and relative valuation techniques. Our intrinsic value of CHF 92.3 per share, is very close to our last estimated target price (CHF 91.3) implying an upside of ~45.5% from current levels. For relative valuation, since the Group operates in three entirely different divisions, we compare each of CPH's divisions with different sets of relevant industry peers. We have employed three parameters - EV/EBITDA, P/S, and P/E - to analyze the relative valuation of the Group. CPH currently trades at a P/S multiple of 0.7x (CY2022E), a significant 43% discount to the weighted average multiple of division peers.
