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Plaisio | 2022: Difficult but not dire

2021: Top line record, impressive profit and cash flow generation – 2021 proved to be a stellar year for Plaisio, with the group delivering record sales (+23% yoy growth) and the highest EBITDA since 2014 (up almost 50% yoy at €20m). The results reaffirmed the resilience of the business model and Plaisio’s leading value proposition. Its multi-channel, multi product and strong route-to market capabilities following past investments differentiate the group vis-à-vis competitors and constitute distinguishing factors for long-term growth.

2022: tough comps, slowing sales, rising costs – Although the bar was set higher in 2021, this year is far more challenging. From a revenue perspective, several of last year’s tailwinds are actually turning into headwinds (e.g. Plaisio lapping strongest annual sales growth since 2007, shift in spending from durables into services) while the squeeze in disposable income from the rampant inflation will put pressure on discretionary spending. On the positive side though, Plaisio is over-indexed towards mid and high-income consumers and, on that basis, its main customer base will not be as severely affected as low-income individuals. On the cost side, energy/freight inflation will pull margins lower, although freight rates ought to become less of a headwind in H2 as comps get easier. Against this background, we have lowered our 2022-24e EBITDA by 3-10% envisaging: 1) sales +0.7% in 2022 accelerating to +4% in 2023 on account of additional capacity (2 new stores); 2) 30bps gross margin erosion in 2022e, with flat margins in 2023; 3) a 70bps increase in opex/sales in 2022e due to higher occupancy/transport costs. We end up with EBITDA of €16m in 2022, lower than 2021 levels but a bit higher than the profitability in 2019-20.

Medium term case intact – Assuming the cyclical drag will gradually fade post 2023, we expect that a mid-single digit organic top line growth over the mid-term could translate into low double-digit EBITDA growth, driving EBIT margins back towards the 3% level (similar to 2017). Given the cash conversion track record, validated once again by the €12m FCF delivered in 2021, we see scope for substantial cash generation post 2023, especially as the new leg of growth is likely to be associated with relatively low capex given the completion of a significant investment cycle in previous years. With Plaisio enjoying a healthy balance sheet (€47m net cash in 2021), we see scope for cash returns to ramp up to levels in excess of the €1.2-1.4m incorporated into our 2023-24 numbers. We remind that 2021 returns were markedly higher bolstered by the €0.17/share capital return.

Valuation – Plaisio is trading significantly lower than its historic average (in terms of EV/EBITDA), as is the case with its foreign peers, reflecting the more challenging earnings momentum ahead. That said, we estimate that the current price discounts medium-term EBIT of just c€11m, some 30% below the levels we see feasible by 2027e. Our indicative DCF yields a valuation range between €101m and €121m, with our baseline valuation indicating an intrinsic value near €5.0 per share.