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Thrace Plastics | Underpinned by elevated demand

Robust H1’21 results… – Thrace Plastics reported a very robust set of results significantly above our expectations, mainly driven by the technical fabrics division and more specifically the continuing solid demand for PPE (personal protective equipment) products. Technical fabrics sales came in some 15% above our forecasts, with the EBITDA line some 20% above our expectations. This was largely a result of increased pricing, driven by the strong demand, especially for medical/personal protective equipment (PPE). Overall, H1’ 21 group EBITDA grew 178% yoy to €72.5m (c€63m of which attributed to technical fabrics), on sales of €234m (+51% yoy).

… lead to upgraded FY’21 forecasts on solid demand for products in the traditional portfolio further propelled by PPE… – As we argued in our initiation report, profitability in the group’s recurring non-PPE portfolio has been re-based at levels markedly higher than in 2019, with momentum staying strong in H1’21 on robust demand. Profitability in PPE is a welcome boost to numbers, which, however, we consider temporary and we expect to continue at a decelerating rate in H2. Filtering through the H1 beat, we have upgraded our FY’21e forecasts eyeing 20% growth in sales and 51% growth in EBITDA. We project group PBT of €89m, split into c€40m sustainable (c4x above 2019 levels) and c€49m from PPE. Our numbers conservatively imply sequential deceleration in H2, with H2 sales -6% yoy and EBITDA -20% yoy. We also note that we have penciled in some c€6.6m one-off profit from the completion of the industrial property sale of Thrace’s U.S. subsidiary.

…though we maintain a conservative outlook looking forward – Despite the solid performance year-to-date, the challenging economic backdrop – amid concerns about the impact on economic growth from inflationary pressures stemming from the commodity and transport price spikes – warrants a cautious stance post 2021. Overall, we maintain our forecasts for minimal PPE contribution in 2022e (at c7% of 2021e levels), but expect the group’s recurring non-PPE EBITDA generation to shape close to c€55m on average in the 2022-23e period (c80% above 2019 levels), driven by strong market positioning, healthy margins and ongoing capex.

Balance sheet optionality maintained – Following strong cash flow generation in H1’21 (>€50m), the group ended the period with a net cash position of €11m. As such and in the light of the solid operating performance of the current year, we see FY21 year-end net cash position maintained at c€12m (with gross cash of >€60m). This suggests there is plenty of upside from balance sheet optionality, testament of which was the announced interim DPS (€0.11), on top of value-creating investments.

Valuation – The current share price discounts a rather conservative setup, namely EBIT post 2021 of just €36-37m, some 25% below the levels we consider feasible by 2025. Our DCF-based valuation (predicated at a 9% WACC) yields a valuation range between c€380m and c€500m, with our baseline indicative scenario pointing to a 12m intrinsic value of €9.8/share (up from €9.4/share previously).