Delisting is just a moment away

The preliminary results of 21/07/2021 were already discussed on the same day so we won’t cover it again. What can be added from the conference call of 29/07/2021 (H1 results) is that Wendel and the Deconinck family have additonally purchased shares in the market and their common JV holds now 88.7% of the share capital and 87.8% of the votes. As a reminder, they need 90% in total to be able to delist Tarkett. Just a matter of time indeed.

Little warm up before the H1 results of 29/07

Revenue and adjusted EBITDA were released and reveal a difficult environment. Revenue only increased +2% to €1.26bn (H1 20: €1.23bn). Sports is the biggest cause with another drop of -16.7%. Adjusted EBITDA grew +6% to €112.7m, but still far from H1 19’s (€127m). Note that the inflation in raws is estimated to have a €130m impact now versus €100m in April.

Public tender leaves the bidder in an uncomfortable position

Tarkett Participation, the JV between the Deconinck family and Wendel (70-30), has finally obtained 86% of the shares and 85% of the voting rights after the public tender. This must be a disappointment as it means the delisting is not an option (90% required for a squeeze-out) and thus Tarkett needs to continue its public reporting as required for any listed company. Costly and must be unwanted.

Tarkett to be delisted overshadows the (weak) Q1 results

The Q1 results were weak in general, mainly impacted by cost inflation and negative currency effects. The outlook for the end of the year still remains with a positive free cash flow. The most important news, however, was that the majority shareholder, the family Deconinck, in cooperation with long-time partner Wendel, will plan a bid of €20 per share on the free float (48% of the shares). Since were are in favour of selling, we won’t adjust the target price.

A disgrace that with this cash generation no dividend is proposed (again)

Tarkett was obviously hit hard by the pandemic and especially in North America where the dependency on the most hit commercial segment is highest. However, strong cost management in opex and capex led to a good year in terms of free cash flow generation, even though the net profit was slightly negative due to an impairment in H1. It is therefore mind-boggling that management hides behind the dividend policy not to distribute a dividend.

Q3 results reveal nothing new since the communication of 28/09.

The Q3 results were slightly better than consensus, the latter having already been updated to reflect the detailed positive profit warning given on 28/09/2020. Europe did ‘well’ while Australia and North-America, and especially the USA, were (significant) laggards. Grower Sports was also heavily impacted by budget cuts.

EBITDA outlook in line with our estimation

H1 revenue landed (-12.4%) above our expectation. The full-year EBITDA looks as if it will end up in line or just below our expectations, driven by effective cost management. Free cash flow, as usual negative in H1, looks as if it will end up flat for the full year which is below our expectations. A dividend will depend on whether Tarkett used its government-backed credit line or not by February 2021 (currently undrawn).

Coronavirus will hit the bottom line as of Q2

A flattish Q1 in terms of EBITDA thanks to effective cost measurements. Free cash flow is protected by cuts in capex for the year. There is no worry on the liquidity side though ongoing talks with the bankers on a waiver of the covenants take a long time. It is Q2 that will bring real clarity on the COVID-19 impact. April is 40% down on sales already, so expect a tough one.

COVID-19 consequence - dividend suppressed for this year

To protect its cash flow generation for 2020 regarding the effects of COVID-19, the management team will, unlike initially proposed in the full earnings 2019 release on 19 February, propose to distribute no dividend this year. Subject to the approval of the Annual General Shareholders meeting on 30 April.

Great cash generation but sacrificing the dividend in return for a healthier balance sheet

The results for 2019 are average to say the least (organic growth of +0.7%) and a meagre €0.58 EPS (2018: €0.77). On the positive side, the free cash flow before dividend looks massive at €244m (€3.83/share), up from €-33m last year, but half of this counts as window dressing. The shareholder is confronted with a sudden dividend cut to €0.24 (€0.60 promised) but, at last, a healthy net debt ratio in return.

Q3 19: after finding a floor, Tarkett might go through the roof

Following this earnings release, we expect to make minor changes to our target price and keep our Buy recommendation unchanged.

H1 19: a disappointing performance and blurred picture due to factoring

Tarkett posted a clearly disappointing performance and there was a somewhat blurred picture concerning free cash flow generation due to factoring, the amount of which is not disclosed in the presentation. Following the conference call and a deeper look into the financial numbers, we estimate the decrease in our target price to be in the range of 7-15%.

CMD 2019: little said about cash generation and ROCE

A mixed CMD in our opinion: the increased capex guidance means that the company is possibly a bit late in terms of automation and digital investments. Management hardly spoke about ROCE and cash flow generation, which is a shame. It spoke about capital allocation but was not really convincing. The new EBITDA margin target is a bit disappointing, as it is below the previous strategic plan. We expect to increase our target price by 5% to 10%.

Q1 19: another company posting a solid start to the year

With almost 4% organic growth in sales, 10% reported growth, a 50bp increase in EBITDA margin and 20% increase in EBITDA, the company is beginning the year strongly. However, management said that the business environment remains challenging with inflationary raw material and freight costs. In this context, Tarkett is pursuing its efforts to improve the cost structure and to increase prices with the aim of offsetting purchasing cost inflation over the FY19. We expect to keep our forecasts mai

FY18: consensus has priced Tarkett out of its 2020 targets

Tarkett missed FY18 consensus significantly Management will come back in June 2019 with new targets. Consensus has priced Tarkett out of its 2020 targets with an EBITDA margin of roughly 10% in 2020. The China-US trade war, as well as Chinese competitors, will have to be carefully watched. Following this disappointing earnings release, we have cut our target price by 9% but we keep a positive recommendation. We believe that the bottom may have been reached, barring any unforeseen events.

Jubilee Metals - Operational Update Q3 FY2024

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Trinity Exploration and Production - Reserves Reduction but Solid Core Business

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I3 Energy (I3E LN) - Canada royalty assets sale

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Morning Note – 16 April 2024

Valeura Energy (TSX: VLE): Three exploration wells deliver three discoveries

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DEC FY23 Results Update

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Morning Note – 15 April 2024

Oil & Gas - Cavendish sector note

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Clean Power Hydrogen - New customers and licensees circling…

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Union Jack Oil (UJO LN) - Wressle update

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PROGRESSIVE: Pharos Energy: Delivering on operations and balance sheet

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Union Jack Oil* (UJO LN) - Wressle update and dividend plans

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Union Jack Oil+ (UJO, House Stock at 23p) - Wressle update