Neodecortech (AIM:NDT.MI) is a vertically integrated business from power generation through to paper manufacturing, through to printing and impregnating paper. It specialises in high-quality printed décor paper and film in natural patterns to sell to the interior decoration industry, including furniture and flooring manufacturers. With all 2017 raw material price increases now pushed through to customers and new investments in film laminates, we see revenues and margins improving. Neodecortech trades at a ca.50% EV/EBITDA discount to its nearest peers.
Strategy: Neodecortech uses its vertical integration model to ensure continuity of affordable supply and flexibility in responding to an ever-changing market place. Margin efficiencies are coming through as plant capacity grows, and new designs and products are leveraging the company’s Italian design heritage.
Trading: Sharp price rises in pulp and titanium dioxide in 2017 and the first half of 2018 are now 90% passed on to customers, restoring margins that slipped in the second half of 2017. High hopes are resting on the opportunities for the new plastic printed laminate film products, which went on sale at the beginning of 2019.
Valuation: Neodecortech is trading cheaply on forecast multiples. At a ca.50% EV/EBITDA discount to its nearest quoted peers, the market is more than adequately discounting for its smaller scale and lack of secondary market liquidity. Our central DCF valuation comes out at €5.14 per share (see page 21 for more details).
Risks: The key risk in the immediate term is the economic outlook for the construction business generally, but in western Europe in particular. In addition, raw material price rises and the possibility of more direct competition from Chinese manufacturers are general concerns in the medium term.
Investment summary: Neodecortech specialises in high-quality décor paper and plastic film, and has strong relationships with its customers. It is looking to invest in overseas sales capability, and further improvements in its machines and new technologies. It is a relatively new listed company, coming to the Italian AIM market in September 2017, and investors have yet to see a full year’s set of results. As familiarity grows, we would expect the valuation discount to narrow.
