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


Broad-based growth across all divisions   

Elevated levels of profitability  

In FY2022, CPH’s net sales increased 46.0% YoY to CHF 725.4mn, driven by growth in all three divisions led by strong demand and higher selling prices, despite the adverse impacts of COVID-19 related lockdowns in China and challenges in raw material procurement. Adjusted for currency fluctuations, topline growth would have amounted to 50.4%. The Paper Division’s revenue improved significantly by 66.5% YoY, mainly lifted by substantially higher prices not least due to permanent capacity closures at competitors’ operations and a long strike at one of the Paper division’s competitors. The Chemistry and the Packaging Divisions registered 15.9% YoY and 35.1% YoY growth respectively, driven by higher volumes and optimum utilisation of the facilities. Despite the substantial rise in raw material, transport and energy costs, the company’s EBITDA increased significantly to CHF 131.1mn (FY2021: CHF 25.7mn) and the corresponding margin expanded to 18.1% (FY2021: 5.2%). During the year, the company’s Paper and Packaging divisions reversed their margin declines of the prior-year period. Along with higher sales prices, this enabled the company to record substantial growth in EBIT to CHF 112.9mn (FY2021: loss of CHF 2.7mn before impairment of CHF150mn on Paper Division assets) and the corresponding margin expanded to 15.5% (FY2021: -0.5%). The net result of the company attributable to common shareholders improved to CHF 101.0mn (FY2021: loss of CHF 1.4mn before impairment).

Outlook for FY2023

The near-term macro-economic uncertainties like the impact of energy price devlopments, supply chain disruptions and ramifications of interest rate hikes by central banks in response to rising inflation resulted in management having a cautious outlook for FY2023.

Group: Concrete divisional developments will depend on the unfolding of macro-economic uncertainties in the key markets and time lags in passing on the higher raw material costs to the market. Management expects FY2023 sales to be higher than in FY2022 and an EBIT in the mid-to-higher double-digit millions. In absence of any unforeseen circumstances, the net result is expected in a similar range.

Paper: Raw material prices are expected to remain at high levels in FY2023. At the same time, elevated paper prices may not sustain and could experience pressure in FY2023. As demand for newspaper and magazine printing paper in Europe already declined by 15% and 25%, respectively, in January 2023 vs. January 2022, the Paper division expects demand to be lower for the year as a whole, resulting in lower net sales and EBIT compared to FY2022. The division plans to invest ~CHF 14mn in enhancing further enhancing plant efficiencies.   

Packaging: The global market for blister packaging is expected to grow by 3-6% over the next years. The division aims to further gain market shares, thus we expect net sales to grow at a rate of around 12% in FY2023. Moreover, with plans to pass on the raw materials costs to the market, the EBIT margin in FY2023 is expected to be broadly maintained at the FY2022 level. Regarding CAPEX, the plans are to invest some CHF 14 million in further expanding the slitting and packaging capacities in Europe and North and South America.

Chemistry: Product demand is likely to improve, leading to higher order volumes. However, in light of an uncertain economic outlook and continued rises in the costs of raw materials and energy, results will depend on the extent (level and time lag) to which the higher costs can be passed on to customers. Net sales are still expected to increase in 2023 and EBIT for the year is likely to be broadly in line with its 2022 level. The division is planning to invest around CHF 14mn to expand it capabilities in China and to establish a new lithium recycling operation in the USA.

Valuation and conclusion

We value CPH using DCF and relative valuation techniques. Our intrinsic value of CHF 97.8 per share is higher than the previous target price (CHF 97.7) and implies an upside of ~10.4% from current levels. For relative valuation, since the Group operates in three entirely different divisions, we compare each of CPH’s divisions with different sets of relevant industry peers. We have employed three parameters – EV/EBITDA, P/S, and P/E – to analyze the relative valuation of the Group. CPH currently trades at a EV/EBITDA multiple of 5.2x (FY2023E), a significant 36% discount to the weighted average multiple of division peers.

The global economy is expected to recover gradually, with the IMF slashing 2023e to 2.9% and rising 2024e by 3.1%. In the short term, we believe ongoing inflationary headwinds and prospects of a slowdown may weigh on the company’s prospects. On a positive note, the company was able to pass on the higher raw material and energy costs. In the same line, the current shortages of raw materials like recovered paper are expected to stay on a high level over the next few months with the respective impact on costs. Although over the past decade the performance of the Paper Division was demanding, the supply side squeeze should keep the division’s profitability at an acceptable level. Moreover, the operating results of the Packaging and Chemistry divisions – both benefitting from somewhat higher visibility – are expected to improve. A better bottom-line at Group level along with net sales increases and the cost optimisation efforts are expected to results in a continued solid performance of the company’s stock price.