Blue Cap continues to deliver with c 10% organic sales growth in H118 and confirmation that the recent, potentially transformative investment (Knauer) is well in hand. The shortfall in profit (EBIT down by 25%) was, as expected, rather a matter of timing as the impact of the disposal of a significant contributor to H117 (Biolink) was compounded by the initial inclusion of underperforming Knauer. Consensus forecasts for this year and next are therefore maintained, given renewed evidence of progress across the board, notably at key turnaround situations, Neschen and Knauer. Substantial increasing benefit is expected after joining forces with new major shareholder PartnerFonds (44%) as long as conducted by Blue Cap management. Internal disputes between PartnerFonds management and their shareholders should have no impact on independent Blue Cap.
Blue Cap’s performance risks being distorted by corporate activity, ie the absence of Biolink, which contributed in full to the comparative and the advent of Knauer for two months. As their revenues were similar (€9m), they cancel each other out on adjustment, yielding a c 10% like-for-like increase. While Production Technology stole the show with a doubling of revenue, there was progress across the board with continued solid low single-digit percentage gains by main divisions, Coating and Adhesives. However, in terms of profit, the performances of Biolink and Knauer were contrasting; H117 was boosted by c €2.5m from Biolink, while H118 was depressed by c €0.7m loss by Knauer (understandable as bought for its turnaround potential). Adjustment shows a c 40% EBITDA rise by continuing businesses. The Knauer deal explains higher net debt (€28m vs €11m at end 2017).
Management has reaffirmed 2018 guidance (higher sales but lower EBIT). Once the latter is adjusted for likely restructuring costs, consensus forecasts suggest a sharp rise in H2 profit. Further out, the purchase of Knauer should allow a step change in returns, given its size (c €70m sales pa) and Blue Cap’s success in turning round temporarily distressed businesses such as Biolink and Neschen.
As well as current growth opportunities, the proposed PartnerFonds tie-up should bring scale and similar corporate targets. Blue Cap has a proven business model and strategy, highly experienced management and a visible record of success.