Cautious optimism with focus on productivity 

Solid profitability below strong prior year as expected

CPH Group (CPH) reported net sales of CHF 323.3 mn for FY24, 10.6% lower year-on-year (YoY) or -8.5% when adjusted for currency and acquisition impacts, due to raw material price decreases and lower volumes owed to customer destockings. EBITDA amounted to CHF 53.8 mn, 17.2% below the strong prior year results, resulting in an EBITDA margin of 16.6%, well within the guidance range of 16-18% (FY23: 18.0%). Group EBIT came in at CHF 39.2 mn with a corresponding margin of 12.1% (FY23: 14.4%). The net result of CHF 34.4 mn compares to CHF 45.1 mn in FY23 which had benefitted one-off real-estate income. Cash flow from operating activities amounted to CHF 53.3 mn (FY23: CHF 57.9 mn) and free cash flow to CHF 34.9 mn (FY23: CHF 54.8 mn).             

Segmental performance

Zeochem: Net sales decreased by 5.6% YoY to CHF 117.3 mn, impacted by steep decline in lithium prices. This was offset by high demand for molecular sieves and deuterated products, but subdued activity in the construction sector somewhat hampered growth. EBITDA reached CHF 22.8 mn, marking a 3.5% YoY increase, with the corresponding margin expanding by 170 bps to 19.5% also thanks to a good mix with higher value products. This was supported by the acquisition of Sorbead India and Swambe Chemicals in April 2024, which gave the Zeochem division its own presence in the Indian chemistry and pharmaceutical markets. The division’s production facilities in Switzerland, China and the USA were well utilized. EBIT amounted to CHF 14.9 mn, a 5.7% YoY decrease, resulting in an EBIT margin of 12.7%.

Perlen Packaging: Net sales stood at CHF 206.0 mn, a decline of 13.2% YoY due to customer destocking and lower raw material prices. Although the product mix exhibited positive trends, it was not enough to completely counterbalance the decline in sales volumes during the second half of the year. Net sales fell in Europe, consistent with the trend observed across all manufacturers in this market segment, whereas demand in Latin America remained stable. As customers reduced their previously high safety stock levels, incoming order volumes largely reverted to their pre-pandemic norms. However, the lower sales volumes combined with lower raw materials prices and higher transport costs resulted in an EBITDA decline by 22.4% YoY to CHF 33.3 mn (margin of 16.1% vs. 18.1% in FY23). EBIT decreased by 26.4% to CHF 26.6 mn, with the corresponding margin compressing by 230 bps to 12.9%.

Outlook for FY2025

The International Monetary Fund (IMF) forecasts global economic growth of 3.3% in 2025. While central banks have begun lowering interest rates to stimulate economic activity, recent market trends remain uncertain, contributing to an unclear business outlook. The persistently weak economic sentiment, ongoing uncertainties, and geopolitical tensions in Eastern Europe, the Middle East, and Asia further reinforce a cautious approach in the current economic climate.

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 for the EBITDA margins to remain in 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 92.5 per share implies an upside of 27.4% 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 7.0x (FY2025e), a 30.0% discount to the weighted average multiple of division peers.