TeraPlast: waiting for demand to boost margins (stays HOLD)

TeraPlast managed to deliver an increase in sales of 55%, to RON 615m, in 2021, while its EBITDA increased by 33%, to RON 74m, 16% below the guidance provided at the beginning of 2021 and 7% below our forecast. The EBITDA margin compression (12.1% in 2021 vs. 13.7% in 2020) and the guidance miss were triggered by: rises in raw materials prices; delays in the commissioning of its investments; a slowdown in civil engineering work in 2H21; and some non-recurring costs. For 2022E, TeraPlast is guiding for 28% yoy organic growth in sales, to RON 789m, and a 51% yoy increase in the EBITDA, to RON 112m, 6% and 10%, respectively, below our November forecasts. Despite the market weakness in 2H21, the company sees a benign environment in 2H22E and beyond from the State- and EU-supported programmes, dedicated to investments in infrastructure, which would support the increase in sales and the improvement in margins. We are confident that TeraPlast should be able to boost sales, albeit not at the pace assumed in our previous report, and we retain a more cautious view on margins. We have lowered our sales and EBITDA forecasts by 8% and 12%, respectively, on average, over 2022-26E. We keep our HOLD rating, but have reduced our 12M price target (PT) by 18%, to RON 0.985. We believe a rerating might be possible after TeraPlast announces its plans for 2023E-onwards.