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Research Dynamics
/ Key word(s): Research Update
This report is published by Research Dynamics, an independent research boutique Deal Overview On 20 March 2024, CPH Chemie + Papier Holding AG’s (CPH) Board of Directors announced its intention to separate the Perlen Paper business from the Chemistry and Packaging activities business through spin-off. It is intended that, following the separation, CPH (excluding the Paper business) shall be renamed CPH Group AG and retain the Chemistry and Packaging divisions. On the other hand, the spin-off entity shall focus on the Paper business and the real estate in Perlen, Switzerland, under the name of Perlen Industrieholding AG. The spin-off transaction separates the Paper business from the Chemistry and Packaging activities. This separation will be achieved by distributing shares of Perlen Industrieholding AG (the spin-off entity) to all existing CPH shareholders as a dividend. Post separation, CPH Group AG shall continue to be listed on SIX Swiss Exchange, while Perlen Industrie-holding AG) shares will be tradable over-the-counter via an appropriate platform. The planned transaction aligns with the Board of Directors’ efforts towards restructuring its business and creating two independent, focused companies. It will not impact the day-to-day operations of the Chemistry, Packaging, and Paper divisions. Market presence and brand identities will remain consistent, such as Zeochem for Chemistry, Perlen Packaging for Packaging, and Perlen Papier AG for Paper. The restructuring of the holding will not bring about any alterations for the independently operating companies' employees, customers, or business partners. The transaction is anticipated to be completed by the end of the second quarter of 2024, subject to shareholder approval and customary regulatory approvals. CPH will convene an Extraordinary General Meeting for shareholder approval of the spin-off on 20 June 2024 and is anticipated to share additional information and specifics regarding the intended transaction and governance frameworks with the invitation to the Extraordinary General Meeting. Deal Rationale CPH (parent) currently operates through three distinct divisions across diverse markets: the Chemistry division, which contributes 20.0% of FY23 sales; Packaging, which contributes 38.0% of sales; and the Paper division, accounting for ~42.0% of total sales. The Chemistry and Packaging divisions have demonstrated remarkable growth over the past five years, boasting sales compound annual growth rates (CAGRs) of 9.7% and 9.1%, respectively. Their strategic positioning within global niche markets has undoubtedly contributed to this success. In contrast, the Paper Division's performance was very volatile due to a market characterized by declining demand and fluctuating capacity as more and more companies exit the market. Furthermore, a similarly positive trend is observed in the EBIT margin development across the Packaging and Chemical segments. In Packaging, the EBIT margin has more than doubled from 5.6% in FY19 to 12.7% in FY23, and in Chemical, it increased from 11.3% in FY19 to 15.2% in FY23. Conversely, the Paper segment with an EBIT margin of 11.6% in FY23 has been very volatile in the last years due to its market environment. These fluctuations within the Paper sector present challenges in reliably projecting the Group's earnings trajectory over time. Through the planned spin-off, management would be able to thoroughly assess the market dynamics and take strategic measures to mitigate these uncertainties and sustain overall profitability. Valuation and conclusion We are maintaining our current valuation and plan to reassess the valuation of both Perlen Industrieholding AG (the spin-off entity) and CPH Group AG (excluding the Paper business) once additional details regarding the distribution and shareholders’ approval become available. We value CPH using DCF and relative valuation techniques. Our intrinsic value of CHF 92.6 per share implies an upside of 4.3% from current levels. For relative valuation, since the Group operates in three entirely different divisions, we compare CPH’s divisions with different 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 5.3x (FY2024e), a significant 47.0% discount to the weighted average multiple of division peers. Additional features: File:
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1867789 26.03.2024 CET/CEST
