Vidrala: Higher prices but at full capacity
Following strong 1Q18 results, we remain Neutral on Vidrala, although our FV increases from Eur62 to Eur85, driven by: the strength of its activities; the roll-over of our FV; and the inclusion of Santos Barosa in its valuation. Although the shares have had a very strong performance, being up by 15% in the last 6 months vs. -0.5% for Ibex (both total return), at this point we don’t see any upside. The company is now working at full capacity and therefore volume growth looks constrained. The price environment remains positive, with Vidrala expecting to increase prices in line with cost inflation, with an indication of higher prices by c. 2% YoY for 2018E. We also note that Vidrala is expecting to increase capex from c. 8% long-term guidance to 10% of sales in the next two years. We believe this could be related to the need to be able to increase production due to it currently operating at full capacity. However the increases in capacity should be relatively small and we don’t expect production to increase more than 1% per year.Vidrala SA is a Spain-based company principally engaged in the glass industry. The Company operates through two segments: Spain and European Union. The Company's activities include the production, distribution and sale of glass bottles and containers used in the food and beverages industries. The Company conducts its own research and development (R&D) operations. It operates production plants and melting furnaces located in such countries, as Portugal, France, Belgium and Italy. The Company owns such subsidiaries as Crisnova Vidrio SA, Inverbeira Sociedad de Promocion de Empresas SA, Gallo Vidro SA, Castellar Vidrio SA, Corsico Vetro SRL, MD Verre SA, Omega Immobiliere et Financiere SA, Investverre SA and CD Verre SA.
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