Aluflexpack confirmed at HOLD, TP CHF 33.5 - Model update: Minor forecast changes

We maintain the HOLD recommendation for Aluflexplack with an unchanged target price of CHF 33.5
Its defensive customer profile and the organic growth efforts should continue to bear fruit also in the current year. Apart from that, the major capacity expansion at the plant in Drniš is currently at the centre of the investment case
We stand by our view of a rather balanced risk-reward profile. We deem the valuation as not compelling enough given already pronounced premiums to the sector
We have made only minor changes to our forecasts

In the aftermath of in-line FY 20 results we have made overall insignificant changes to our forecasts and thus maintain the HOLD recommendation for Aluflexplack with an unchanged target price of CHF 33.5. Thanks to its defensive customer profile the group has weathered the Covid-19 crisis very well and the organic growth efforts in the field of e.g. coffee capsules and stand-up pouches should continue to bear fruit also in the current year. Apart from that, the major capacity expansion at the plant in Drniš is currently at the centre of the investment case with construction activities being in early stages and targeted production ramp-up in Q4 22. The management remains committed to rounding out growth via M&A but we were left with the impression that a transaction might not be around the corner in the short run. Bottom line, we stand by our view of a rather balanced risk-reward profile with the current share price matching our target price. We deem the valuation as not compelling enough. On our forecasts Aluflexpacks FY 21-22e EV/EBITDA multiples stand at 13.1x and 11.2x, which are some 45% and 35% above the current sector median (blend of European and overseas peers, premium actually widened since the announcement of the capacity expansion). Moreover, its EV/EBITDA multiples are meanwhile at a premium to industry leader Amcor. Turning to EV/EBIT and P/E multiples we observe even more pronounced gaps.

Cost inflation presumably limiting further earnings/margin upside: We maintain our FY 21e sales and adj. EBITDA forecasts at EUR 273 mn and EUR 43.7 mn, respectively, which are just fractionally above the top end of the company guidance ranges of EUR 260-270 mn and EUR 40-43 mn (implied margin 15.4-15.9%). While headwinds from aluminium and energy exposures are largely hedged, according to the company, bearing in mind dynamically rising other cost items, we do not envisage further margin upside at this stage. Despite the groups determination to pass on the inflation pressure to customers wherever possible, we think that the further rise of chemicals (solvents, lacquers), plastics and freight costs over recent weeks should be become visible at least temporarily/on a quarterly basis (most likely emerging as of Q2 while Q1 should still be largely unaffected). A presumably improving product mix should have a certain compensatory effect.

Trimming forecasts: Adjusting the FY 21e for assumed higher D&A and non-recurring effects we lower EPS by 20% to EUR 0.84. We confirm FY 22e revenues at EUR 310 mn and adj. EBITDA at EUR 50.1 mn but tweak EPS to EUR 1.08 from EUR 1.11. Also, we introduce explicit FY 23e forecasts calling for revenues of EUR 357 mn, adj. EBITDA of EUR 58.8 mn and EPS of EUR 1.30.

Valuation: The target price of CHF 33.5 is exclusively based on a DCF model (TG 2%, perpetual EBITDA margin 15.7%), which we believe captures best the returns from the forthcoming phase of accelerated investments.