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From an industrialist to a luxury player?
Upside 21.2%
Price (€) 11.92
Market Cap (€M) 301
Perf. 1W: 0.17%
Perf. 1M: 0.85%
Perf. 3M: 36.5%
Perf Ytd: 2.05%
10 day relative perf. to stoxx600: -1.12%
20 day relative perf. to stoxx600: -2.25%
Earnings/sales releases02/09/2015

An unexpected growth message wrapped in a strong H1


Chargeurs delivered a strong set of earnings and firmed up confidence in FY2015. This is half a surprise. The real positive surprise is a new corporate structure aiming at pinpointing its so far hidden growth areas.

Key figures include 5.2% top-line growth to €256.6m H1 sales, a 25% gain at the EBIT and bottom line levels to respectively €14.4m and €8m.
The group remains debt free with a net cash position of €9.8m, while its equity position shoots to €205.6m.


Top-line growth excluding forex is a negative 2.2%, which should not be a worry as it reflects the continuing pruning of not so profitable clients in the Interlining division. As a matter of fact, Chargeurs breaks down its change in turnover into a 3.3% drop in volume nearly matched by a 3% gain in mix/prices (excluding forex). This shows that tighter management of clients (through group-wide implementation of procedures initiated by Protective Film) is paying off handsomely: Chargeurs charges more.

The big piece of news is that Chargeurs puts a positive spin on its corporate story by giving birth to a fourth division dubbed “Technical Substrates”. The moniker is rather a dry one to describe technical textiles processed to suit high value demand such as digital printing, special furniture surfacing, surfacing in shows, i.e. where the market seems to be driven by demand rather than by supply of an ever-cheaper, better product. The key word here is growth with a current going rate of +25%/y expected to plateau at 15%. These are great figures in contrast to the historical Interlining business no-growth proposition. Even better, those “Technical Substrates” seem good for 15% operating margins with a floor at 13%. This is quite a departure from the margins of other businesses (below 10%).

That fourth division is extracted from the old Interlining with the new one thus becoming smaller and having to fight even more in its historical textile markets. The underlying growth is still zero to negative but, as pinpointed above, this division has done a good job at fighting for its prices. Its only strategy is to continue to push upmarket even in a context of lower demand from Italian luxury fashion (Russian rouble collapse, anti-graft measures in China, et al.). The impressive achievement is to have extracted a 90bp operating margin gain to 3.5% in this unfriendly context.

Chargeurs’ management made it clear that it was looking at this narrowed-down Interlining division with a “strategic review” in mind while not entering into specifics: acquired growth/consolidation of the industry or outright disposal if there was a good price.

Chargeurs Protective Film, still the driving force of the company, has been surfing on strong US operations driven by the construction side and the dollar tailwind. It is pleasing to see that clean operating margins have expanded to 9.6% from 8.6% even though volume gains have been modest and polyethylene suppliers have pushed for extortionate prices at a time when crude prices had roughly halved vs. H1 14. Although 2/3rds of price swings are passed on, the slope of the swing matters. Hopefully that pressure should subside by H2.

The Wool division (limited to trading of combed wool) is seemingly on a lasting profitable path, even though realisation prices (and hence posted revenues) may swing about. The long-term trend seems to be for firming up prices.

All in all Chargeurs is posting an excellent first half and created a small revolution by bringing in the open a growth potential now that it is big enough. Most notably the expanded production capacity for “Technical Substrates” should be converted into new sales from 2016.

On financials, the group has written off the goodwill related to a 49%-owned Chinese operation and accepted the fact that its better operational outlook warranted writing back some of its enormous tax credits. So that the tax bill is a €6.8m gain in H1. The suspicion is that it may enjoy a low tax rate for some time as a function of its stronger operations. Short term, the 2015 tax credit is a one-off that accrues the potential tax savings attached to future earnings over the next 5 years. That potential is likely to be revised every year on a rolling basis with the impact on the tax credit being much less substantial for a given year.

The outlook for H2 is a confident one with management providing a floor at €26m for its clean operating result. There is a tradition of caution so that the market will go for more. AlphaValue was already discounting an implied €27.2m (we use the EBIT breakdown as opposed to the operating earnings breakdown).


We have upgraded our EBIT forecasts by about 9% to reflect stronger operations than foreseen up to now with the “Technical Substrate” division helping somewhat. In addition, the new tax situation whereby tax credits have been recognised for future use against French earnings helps keep a partial lid on that charge.


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