This report is published by Research Dynamics, an independent research boutique


Recovery in all divisions led by higher price realization

Profit guidance raised for FY2022
On the back of good volumes and higher sales prices, the company expects to report an EBIT of around CHF 50.0mn for 1H2022. Consequently, the company has also raised the guidance for FY2022. However, weak macroeconomic conditions and geopolitical uncertainties may weigh on the sustainability of the improvement in the financial performance, which was largely supported by some one-off positive impacts.

Group: Group net sales are expected to increase in FY2022 as all divisions were able to pass on the higher costs of raw materials to their various markets during 1H2022 and also recorded higher volumes. As a result, net sales are projected to improve across all three businesses, with expectations of total net sales of around CHF 360mn in 1H2022. As mentioned above, on profitability the Group guides for an EBIT of CHF 50mn in 1H2022, of which CHF 30mn are expected to come from Paper. We expect the 1H2022 contribution from Packaging and Chemistry to be similar, thus we project CHF 10mn for each. On the basis of the positive trend in 1H2022, we have raised our revenue growth estimate for FY2022 to 26.0% (previously:16%), resulting in total FY2022E net sales of CHF 627mn (previously CHF 533mn), although management stresses that visibility currently is very low due to the known geopolicial situation and uncertain economic outlook. Still, the Group expects to report a high double-digit (previously: mid double-digit) number for EBIT and net results. On the back of the positive guidance surprise, we have also revised our FY2022 estimates for EBIT and net results to CHF 83.3mn and CHF 70.4mn (previously: CHF 52.0mn and CHF 49.7mn) respectively.

Paper: The division’s top line has been positively impacted by price increases as well as certain one-off events in 1H2022, alleviating demand-supply imbalances which was benefitial to the company’s operations. Prices among others also benefited from a month-long strike at one competitor's facility and a reduction in production capacity, as Stora Enso announced the intended sale of four of its five paper factories. While these one-offs have resulted in higher pricing power for CPH’s Paper division in 1H2022, prices going forward are expected to soften as the strike at UPM is now resolved and with their operations onstream again, adding to supply. Owing to the higher demand, CPH’s paper production is also running at full capacity at the moment.  Consequently, the division expects to report EBIT of CHF 30mn in 1H2022 and also a double-digit-EBIT for the year.

Packaging: The division is expected to report improved net sales in 1H2022 and also for the year driven by good demand. Morover, the new coating plant in Brazil is expected to become operational shortly, but the impact of this on the topline is yet to be ascertained in 2H2022. However, due to raw material supply constraints and possible overstocking by certain clients, we expect some fluctuation in the top-line between the two half years.

Chemistry: The product demand has been improving based on favourable business trends. Thus, also here we expect higher sales and EBIT results in 1H2022. The division over the last years has substantially reduced its cost structures thanks to relocating capacities. Moreover, the capacity expansion will eventually impact positively on the top line going ahead. The division is set to invest in the additional capacities at its sites in the USA, China, Bosnia and Herzegovina, and Switzerland.

FY2022 Guidance:
Management expects higher sales for all three business divisions and rasied the following financial targets for FY2022:

• Group EBIT and net result in the high-double-digit millions
• Chemistry Division: Improvement in EBIT
• Paper Division: Higher sales and a double-digit million EBIT, supported by lower depreciation
• Packaging Division: On track to record a double-digit-million EBIT

Valuation and conclusion
We value CPH using DCF and relative valuation techniques. Our intrinsic value of CHF 92.3 per share, which is same as our last estimated target price (CHF 92.3) implying an upside of ~28.5% 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 60% discount to the weighted average multiple of division peers.

All the three divisions are expected to report improved net sales, as it was largely able to pass on the higher costs of its raw materials to its various markets across the business segments. The Paper Division was beniffited by certain one-off situations that led to short term imbalance in the market, the division is expected to report improvement in profitability and register a high double-digit-million EBIT this year, but the performance will stabazlize going forward. Moreover, the operating result of the Packaging Division is also expected to improve. With improvement in bottom-line at group level along with net sales and the cost optimisation efforts are expected to offer a required boost to the company’s stock price. However, there counld be some headwinds in the 2H2022 due to the low visibility and uncertain outlook.