Neodecortech (NDT) has performed well in 2019, in our view, against a difficult economic backdrop. 1H, 3Q and October revenue rose 2%, 6% and 9%, respectively. We are forecasting the year to end strongly, with full-year revenue up 5% and adjusted EBITDA fractionally ahead, at €19.4m. NDT is planning to move to the Main Market in 1Q’20, and the controlling family has reduced its stake to 64%. NDT trades at a ca.28% EV/EBITDA discount to its nearest peers – a 20%+ narrowing since February this year.
- Strategy: NDT 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: Circumstances are not easy currently, with customers reluctant to commit to orders. NDT is focusing on growing the plastic printed film range used in the production of luxury vinyl flooring tiles. Raw material prices have continued to weaken through 2019, encouraging purchasers to wait for further falls.
- Valuation: NDT is trading cheaply on our forecast multiples. At a ca.28% 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 €5.27 per share (see page 22).
- 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 fluctuations 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 further improvements in its machinery and new technologies. It listed on the Italian AIM market in September 2017 and is moving to the Main Market in the new year. As familiarity grows and the new products comprise a larger proportion of the business, we would expect the valuation discount to continue to narrow.
