Delignit has combined another strong trading performance (H118 EBITDA up 16%) with further signs of a potentially lucrative return on its strategic goal of business model transition. While early days, the award of a high-profile OEM contract for motor caravans brings not only the promise of double-digit million annual sales but, yet more importantly, encouraging evidence of Delignit’s ability to transfer its model to new markets. Meanwhile, H1’s clear EBITDA margin beat (by 10%) suggests that, as for 2017, this full-year management guidance may well prove cautious. Finances remain sound (net debt/EBITDA of only 0.8x for the last 12 months).
The six months to June maintained the pattern of recent halves with meaningful profit conversion of 8% y-o-y revenue growth. Gains of 16% and 30% respectively in EBITDA and net profit were driven again by investment-led economies of scale, notably a reduction in material costs. Automotive, Delignit’s principal sector, was to the fore (revenue up 15%) thanks, as in the last two years, to strong OEM business and increasingly to targeted maximisation of revenue per vehicle. By contrast, Technological Applications saw a 10% top-line decline from a demanding comparative. Exports continued to be the driver (up 22%) in line with strategic expansion. Net debt at June 2018 was €4.4m (€4.0m at end 2017).
Favourable macro factors aside, Automotive should benefit from OEM follow-up work as well as new orders, while Technological Applications is set to stabilise. Confirmed 2018 guidance is for sales growth of more than 8% and EBITDA margin at least at the level of 2017 (9.2%). Clear EBITDA margin outperformance (9.9% against 9.0% y-o-y) in H1 on such volume enhancement makes this full-year management guidance appear cautious. Further out, there should be an increasing contribution from the 9-year motor caravans contract (likely fully effective by 2021).
Given maintained good prospects, the current weakness of the share price appears to be a correction after its spectacular response (up c 50%) to the 2017 earnings surprise. Also, the FY17 P/E ratio of c 34x is at a marked premium to both Delignit’s wood processing and automotive supplier peer groups. Management guidance for 2018 gives EV/EBITDA of c 13x (peer average c 6x).
