Restocking effect uplifts our FY21-22 view on CPF

The valuation increases across the different valuation metrics result in a 14.0% higher target price, pushing us further in our Buy recommendation. Chargeurs Protective Films’ strategic positioning and operational strengths stands to benefit from the supportive trading environment as global supply chains are subjected to the inventory rebuilding trend, as demonstrated by high raw material prices and limited transport and freight capacity worldwide. Moreover, based on the still challenging pandemic situation, 2021 is proving to be another exceptional year for the PPE market and thus for CHS, which contributes to our bullish scenario.

The significant upgrade in our FY21-22 EPS forecasts is driven by: 1) improved revenue and margin expectations for the Protective Films division, from €285m previously to €385m and a recurring operating margin of 11.0% versus 7.9% in our previous estimates. We see a very supportive trading environment as the rapid recovery of the industrial activity and low inventory levels post-pandemic put CPF in a prime position to leverage the strong demand of industrial goods and construction materials, with margins benefiting from the division’s high-end product portfolio and state-of-the-art production capacity.

2) Higher top-line expectations for CHS, reaching €120m in FY21 versus €85m previously, as demand for PPE may be stronger than anticipated through Q2-Q3 in response to the recrudescence of the sanitary crisis in India, which puts the global efforts in curbing the pandemic under threat.

Based on these changes, we see our group recurring operating income forecast increasing from €40.2m to €66.61m in FY21, which puts us 61% above consensus estimates, and our FY21 EPS increasing from €0.68 per share to €1.21. For FY22, the gradual cool-down of this “restocking effect” should see CPF’s revenues and margins normalizing, but still coming above our previous forecasts.

We have updated our estimated NAV by increasing the forward-looking EBITDA used in the valuation of the CPF division, which fully explains the increase in our estimated NAV.

The rise in our DCF-based valuation is driven by the higher earnings expectations in FY21-22, with EBITDA reaching €77.7m in FY21 and rising to €95.6m by 2023 (compared to €90.9m in our previous scenario). We have maintained the rest of our assumptions stable.

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