The company reported an encouraging first half, driven by the strong performance of Protective Films and Healthcare Solutions, though all divisions contributed positively to the group’s profitability in H1. With cash generation from operations having reached €131m over the past 18 months, Chargeurs disposes of a sizeable war chest with its acquisition strategy now back on the offensive. On the organic growth front, strong order books for its core activities stand as encouraging signs of an upbeat FY22 performance.
Let’s start by prefacing that the H1 20 performance was of the one-off kind as €254m of the €519m in revenues reported was driven by the surging demand for personal protective equipment in the context of the pandemic. Given this, a more apt comparison is to the ‘pre-pandemic’ levels, which show an encouraging picture as group revenues rose +11.6% versus H1 19, in spite of CFT-PCC and CLM still on the path to recovery as economies gradually reopen to non-essential retail.
Upbeat results driven by Protective Films
The top-line growth was driven by the record half-year performance at CPF, with revenues of €169m posting growth of +29% lfl when compared to H1 20, and +21% lfl versus H1 19. As we had mentioned in the revision to our estimates back in April, CPF stood in a prime position to leverage the strong demand of industrial goods and construction materials, with margins benefiting from the division’s high-end product portfolio and state-of-the-art production capacity. This proved to be true, with rising demand from the building and home appliances sector boosting the order book to nearly twice its ‘normalised’ level.
On the margin side, as the price of polyethylene surged, Chargeurs was able to minimise the impact on margins thanks to its strong pricing power, partly passing them on to consumers, and benefiting from supply contracts already signed at lower sales prices. This resulted in an underlying operating profit of €12m, corresponding to an 8.4% margin, compared to our 8.0% forecast.
Post-pandemic normalisation improves outlook
For CHS, while revenues regularised from the extraordinary business environment of the PPE market in H1 20 (€71m versus €254m last year), the division saw improvements in its operating profitability, driven by its high-quality and service-focused approach according to the Chargeurs ethos. Recurring operating profit came in at €18m, posting a solid 25.4% margin. New product launches and the signing of distribution contracts with partners in the health and personal care space should support revenue generation to reach the upper end of the €50-100m FY21 guidance.
Regarding Museum Solutions, the incorporation of D&P and Hypsos had a positive scope effect, with revenues for the division rising by +9.6% lfl versus H1 20. While a partial restart of the activities of the non-museum activities and the strong operating profitability of D&P also resulted in a significant improvement in margins yoy (from 3.2% to 9.9% in H1 21). As restrictions related to the sanitary crisis gradually subside, the level of activity should normalise, with significant room for improvement next year, particularly for the businesses exposed to retail and trade shows.
On CFT-PCC and CLM, both divisions remain subject to the weakness of the fashion and retail sectors, with revenue remaining roughly stable yoy. Nonetheless, there are encouraging signs as CFT’s order book surpassed the August 2019 levels, and the market environment should improve through H2 and 2022 with the progressive reopening of the economies as the pandemic risk subsides.
Solid cash generation supports external growth offensive
Overall, the group recurring operating result reached €34m, corresponding to a 9.1% margin, which stands above our €28m forecast. The strong operating performance and effective working capital management resulted in very solid cash generation over H1, amounting to €58m. This not only helped reduce the net debt level to a low 1.1x EBITDA, but also boost the liquidity position to almost €400m. Based on this, the group has substantial financial flexibility to pursue external growth, with management pointing to a more aggressive acquisition strategy, the outcomes of which are already surfacing as it announced the acquisition of a British luxury products business.
We see this newest addition to the company roster as a natural progression for Chargeurs as it matches its high-value added and low-capital intensity ambitions. This may lead to the creation of a sixth pillar that could help the group achieve its 2025 targets.
Given that the outlook for H2 remains subject to the full reopening of economies as the sanitary crisis subsides, we will not make significant changes to our current forecasts, particularly for the divisions that have been the most affected, i.e. CFT-PCC and CLM. Regarding 2022, management’s confidence on next year’s performance and the strong visibility given the record order book levels, particularly for CPF, will lead us to improve our 2022 assumptions and further supports our positive opinion on the stock.
