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


Resilient performance and positive outlook after the separation of the Paper division

Sales and profitability impacted by lower materials cost
In 1HFY24, the CPH Group (CPH) with its remaining Chemistry and Packaging divisions reported net sales of CHF 176.9 mn, corresponding to a 6.9% decrease year-on-year (YoY), or -5.0% when adjusted for currency and acquisition impacts. EBITDA for the Group amounted to CHF 30.2 mn, a 9.6% decline YoY. The corresponding margin dropped to 17.1% (1HFY23: 17.6%). After accounting for depreciation and amortisation of CHF 6.7 mn, Group EBIT was CHF 23.5 mn, while the corresponding margin declined to 13.3% (1HFY23: 14.4%). The net after-tax result of CHF 21.1 mn compares to CHF 31.9 mn reported in 1HFY23. In addition to its entry into the Indian market, the key business developments in the 1HFY24 for the newly named CPH Group AG (formerly CPH Chemie + Papier Holding AG) were marked by the successful spin-off of its paper manufacturing activities and its real-estate assets into the newly founded Perlen Industrieholding AG. The CPH Group took on new financial liabilities totalling CHF  28.9  mn to finance the spinning-off of the Paper division and the Sorbead India and Swambe Chemicals acquisition. This left the Group with net cash of CHF 1.0  million.

Segmental performance

Chemistry: Net sales increased 7.7% YoY to CHF 62.0 mn mainly on strong demand for deuterated products for use in laboratory analyses and OLED displays and high-value molecular sieves used in the production of ethanol. This was slightly offset by declines in demand from the construction sector. The divisional EBITDA reached CHF 10.4 mn, marking a 10.0% YoY increase, with the corresponding margin expanding 30 bps to 16.7%. The margin growth was supported by the acquisition of Sorbead India and Swambe Chemicals in April 2024, which gave the Chemistry division its own presence in the Indian chemistry and pharmaceutical markets. The division’s manufacturing facilities in Rüti, China and the USA were well utilized. In 1HFY24, EBIT amounted to CHF 7.0 mn, a 1.8% YoY increase, resulting in a EBIT margin of 11.3%.

Packaging: The Packaging division reported net sales of CHF 114.9 mn, a decline of 13.3% YoY due to lower order volumes  resulting from the reduction of customers safety stocks and the decline in the demand for dietary supplements. The division saw its very high order volumes of 2023 return to their lower pre-COVID levels in the 1HFY24. Disruptions to logistics chains such as in the Red Sea shipping route prompted rises in transport costs. The new plant in Brazil further ramped up production and began supplying customers with coated PVC films. These serial deliveries are steadily being expanded. However, with the lower sales volumes combining with lower raw materials prices and higher transport costs, the EBITDA declined by 15.2% YoY to CHF 20.4 mn with corresponding margin of 17.8% (1HFY23: 18.2%). The EBIT decreased by 17.3% to CHF 17.1 mn, with the corresponding margin compressing by 70 bps to 14.9%.

Outlook for FY2024
The overall market environment may improve somewhat as interest rates are expected to be lowered further in various regions. However, economic instability persists amid ongoing uncertainties and geopolitical conflicts in Eastern Europe, the Middle East, and Asia. These factors further complicate the economic landscape, presenting challenges for businesses as they navigate through 2HFY24.

The management reiterated that the CPH Group with its remaining Chemistry and Packaging divisions expects to report an EBITDA in the mid-double-digit millions. Despite the negative net first-half result of CHF -29.8  mn on account of the spun-off Paper division, the group expects to report a positive net result for the year as a whole. The management believes that the group is now active in the chemistry and packaging segments, which both show sizeable potential for further growth. The CPH Group is already very well positioned with its strong Zeochem (chemistry) and Perlen Packaging (packaging) brands; and it can now focus more firmly on these to take full advantage of the above-average growth opportunities offered in niche markets worldwide.

Valuation and conclusion
The Packaging and Chemistry divisions offer a favourable long-term outlook and the operating results of these divisions are expected to remain resilient. Apart from a supportive outlook, the cost optimisation efforts are expected to result in margin improvement to the 16-18% range going forward, which should lead to solid earnings growth.

We value CPH using DCF and relative valuation techniques. Our intrinsic value of CHF 86.1 per share implies an upside of 28.5% from current levels. For relative valuation, since the Group operates in two entirely different divisions, we compare CPH’s divisions with various sets of relevant industry peers. We have employed three parameters – EV/EBITDA, P/S, and P/E – to analyse the relative valuation of the Group. CPH currently trades at an EV/EBITDA multiple of 7.1x (FY2024e), a 20.0% discount to the weighted average multiple of division peers.