Analysis Department of Bankinter offers analysis of the latest news on the Spanish company:
2017 results are weak. Net profit back -2% and significantly narrower margins.
Due to the deterioration of the figures and reduced visibility to 2018 (volatility in foreign exchange and increase in the price of raw materials), we revised downward our estimates.
We reduce the target price from 57.0 euros / share to 53.0 euros / share (potential) and lowered the recommendation to sell from buy.
weak results. Narrow margins and profit back
The strong euro has hindered the development of the figures in the second half of the year and, more markedly in the fourth quarter 2017. As shown in the table below, sales accentuate the trend of slowing up + 2% (197 million euros) from + 6% in the third quarter 2017, + 7% in the second and 12% in the first. Ebitda back -16% (to 46 million) and recurring Ebitda -7% (up to 48 million), with significant narrowing of Ebitda margin up to 23% from 28% in the fourth quarter 2016. Net income cumulative (BNA) shrinks 19% to 30 million euros.
Deteriorating results for the fourth quarter 2017 has prevented the company has achieved its targets for the full year in terms of BNA , which backs -2% to 122 million euros vs. guidance of 125/129 million euros (+0% / + 3%), also standing below our forecast (125 million euros estimated BKT).
In contrast, revenues in line with the guidance (EUR 760/785 million, +4% / + 7%) increase + 6.5% to 778 million euros and exceeded our estimate (773 million euros estimated BKT) driven by the positive performance in Latin America, Europe and Asia . However, in North America they lose pace by falling US sales the weak dollar penalized.
As for the breakdown by type of business , the revenues increased + 6% Wrappers to 734 million euros and of Cogeneration + 11% to 44 million euros.
Operationally, the recurring EBITDA subtracted almost 2% growth in 2017 and 8% in the fourth quarter 2017. Specifically, the total EBITDA (EUR 211 million; + 3.5%) is below our forecasts (227 million euros estimated BK) and the split low range of the Company (210/218 million euros, +3% / + 7%).
Moreover, the margins taper (Ebitda Margin 27% vs. 28% in 2016 and 27% vs. recurrent 28% in 2016) due to increased costs, being the starting Aprovisionamientos which recorded the highest increase ( + 12%) by the rebound of the price of raw materials like cellulose and collagen, representing approximately 80% of revenues. However, they also increase the Personnel Expenses and Other Operating Expenses (around + 9.5%).
The financial result worsened not only by negative changes in exchange rates (euro ‘s strength against the dollar, the Brazilian real and the yuan) but also by:
- + 1.5% rebound financial expense.
- Decrease in financial income (-35%) by decreasing cash (-38% to 28 million euros) for the payment of investments (CAPEX EUR 107 million, + 35%) to strengthen the competitive position of group within the strategic plan More to be. Stressing the effort in CAPEX for the new plant Cáseda (Spain) production of viscose – based wrappers.
In consequence of the foregoing, profit before taxes (EBT) -6% back up to 145 million euros.
The positive side is on the side of the balance that continues to show strength and remains sanitized because, despite the increase in net financial debt (NFD) (41.1 million euros from 8.8 million euros in December 2016), leverage is irrelevant: DFN / EBITDA 0.2x and DFN / PN 0.05x (Equity + 3%, to 728 million euros).
Finally, the dividend announced (1.55 euros / share) represents a yield of 2.8% , which will advance to 3% (estimated BKT).
Looking ahead to 2018, we believe that margins will continue to be eroded by the high pressure on costs (due to changing upward trend in the price of plastic polymers) and foreign exchange . The increase (+ 5%) estimate for income – helped by the price increase strategy of the company – will not be enough to offset the rise in costs (+ 6% estimated BKT).