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1H21 results from Neodecortech (NDT) confirmed the trend of the first quarter. Revenue was up 41% vs. 1H20, but, more tellingly, it was up 21% vs. 1H19, demonstrating the strength of NDT’s new products and its European markets. That strength has continued into 3Q. We have raised our revenue forecasts significantly, as well as our earnings forecasts, although there is some offsetting of additional costs, as the price of energy and raw materials has risen sharply.

  • Trading: Decorative paper, bolstered by its new higher-margin products – EOS and PPLF – saw revenue up 75% and margins up to 14.3%, their highest for three years. This was achieved partly by passing on higher input costs and despite shortages of resin affecting production.
  • Trading 2: Cartiere, the paper business, also saw strong revenue gains compared with both 2020 and 2019. Pulp prices were driven higher by strong demand in both China and Europe, but the company comments that this trend seems to have come to an end, and prices are expected to stay steady or decline in coming months.
  • Valuation: NDT has performed strongly but remains relatively cheap on our forecast multiples. At a ca.20% EV/EBITDA discount to its nearest quoted peer for both 2021E and 2022E, the market is still over-discounting for its smaller scale, in our view. Our central DCF valuation comes out at €6.74 per share, up from €5.58.
  • Risks: The key risk in the immediate term is the economy slowing down after a very strong bounce. Raw material price rises have been passed on so far but must have an impact on overall demand. There is the possibility of more direct competition from Chinese manufacturers 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.
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