THRACE PLASTICS | Earnings reset, valuation to re-rate
Broad product and geographic footprint – Thrace Plastics is a producer and distributor of plastic materials with a broad product portfolio, serving a diverse set of end market sectors. Following business rationalization and significant investments, Thrace looks well-placed to benefit from its extended geographical footprint (international sales 79% of the group), cyclical tailwinds and its focus on higher-margin products. In the short-term, the group continues to enjoy strong demand for medical/personal protective equipment (PPE) products. Although the boost from the latter is not sustainable, it will significantly propel Thrace’s already strong financial position and liquidity this year. We see FY’21 sales +14% yoy, translating to >30% growth in adj. EBITDA (>€100m).What has been missed? The earnings reset… – The business went through a period of restructuring in recent years, with the first signs of the self-help actions becoming evident early in 2020. The resulting significant re-basement of profitability at markedly higher levels than 2019 was masked by the COVID-related PPE boost. On our estimates, after past restructuring efforts, the group’s recurring non-PPE EBITDA generation has been re-based to c€48-55mn, >50% higher than 2019 levels. Our numbers incorporate 7% non-PPE EBITDA CAGR over 2020-2023e.
Sustained returns in focus – The significant internal restructuring and product mix enhancement, along with the boost from PPE products, have led to a >20% incremental return (pre-tax ROIC) on the c€165m investment plan executed in the 2015-20 period (compared with a mid-single digit group ROIC in 2018). Looking ahead, in a more normal post-pandemic period, our numbers assume that ROIC will stay in the 18-20% area, underpinned by what we deem as sustainable double-digit EBIT margin and more “normal” capex levels (€15m post 2023).
Balance sheet optionality – The group quadrupled operating profits over 2018-20 and looks primed for >40% EBIT growth in 2021 on our (conservative) numbers. This has led to significant deleveraging, with net debt down to just €9.2m in Q1’21. Following the €26m FCF generated in Q1’21 and a total of c€61m in 2021e, we expect Thrace to switch to a net cash position (>€10m) by year-end. We therefore argue there is upside from balance sheet optionality, in the form of higher shareholder returns, buybacks, M&A or capacity expansion.
Valuation – Despite the c300% return in the last 2 years, we argue the current share price still discounts a rather conservative setup, namely medium-term EBIT of just €37m, some 20-25% below the levels we consider feasible by 2025. Our indicative DCF (at 9% WACC) yields a valuation range between c€360m and c€480m, with our baseline indicative scenario pointing to a 12m intrinsic value of c€410m (€9.4/share).
Thrace Plastics Holding and Commercial SA Formerly known as Thrace Plastics Holding and Commercial Societe Anonyme. Thrace Plastics Holding and Commercial Societe Anonyme, formerly Thrace Plastics Co SA, is a Greece-based company engaged in the production and trade of plastic products, textiles and packaging materials. The Company's range of products are divided into three categories: Technical Fabrics & Fibers, which includes such products as woven and non-woven geotextiles, ground covers, crop covers, nets, roofing membranes, staple fibers, concrete reinforcement fibers, geogrids, Mega bag components and carpet and industrial yarns; Consumer Packaging, which offers plastic containers and lids, cups, tubs, bottles, bags for liquid packaging, as well as plastic packaging for food products, and Industrial Packaging, which includes ropes and twines, big bags, films, woven polypropylene bags, bags for heavy duty, pallet covers, and stretch hoods. The Company operates through its local and international subsidiaries.
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