Polytec confirmed at BUY, TP EUR 8 - Leaner cost base key to capitalise on market recovery

We confirm the BUY recommendation on the back of a target price increase to EUR 8 from EUR 7. 3Q results came in slightly ahead of our projections but more importantly were 1) confirmative for the gradual recovery of the automotive market in recent months and the scope for further, though likely jagged, improvements going forward and 2) provided an initial impression of the effectiveness of the groups restructuring and cost-cutting measures. Most importantly, the latter should not only enable the group to end FY 20 with break-even EBIT (excl. one-offs) but also provides a leaner cost base in Polytecs trajectory to reclaim former profitability levels. It goes without saying that visibility remains low and the renewed measures across Europe to contain the Covid-19 pandemic herald further challenges to be overcome. Nevertheless, we think that silver linings can be taken away from the sectors reporting season, with reasonably good 3Q performances and constructive outlooks by several car and truck OEMs as well as by suppliers. Against this backdrop we maintain our positive stance on Polytec as a compelling recovery story coupled with an attractive valuation. The stock currently trades at a P/B multiple of 0.5x for FY 21e, which is just above the historical trough level over the last decade, which was marked at around 0.3x in late March. Leaving the coronavirus crisis aside, the stocks lows stood at 0.7x (1y forward) and 0.6x (2y forward).