Chargeurs SA confirmed by dint of its H1 16 earnings release that it is in ship-shape form with net earnings up 64% on EBITDA up 22% and sales down 1.2% (fx and perimeter effect). The balance sheet is strong with a €16m excess cash position and €214m equity as the cash generation has remained very strong so that a €0.2 interim dividend can be paid on 21 September (shares go ex on 19 September). This is a first and will definitively push Chargeurs into shareholder-friendly investment territories.
Chargeurs’ widely different cylinders have been all ticking smoothly by H1 16.
The pulling force of the Protective Films business is being felt once again. This business, which accounts for nearly half of Chargeurs’ group revenues, has been confronted with negative forex developments but still managed 6% lfl growth, attesting to market share gains through renewed product lines. Its EBITDA margins are running at an all-time high of 13.7% (up 180bp yoy) as plants are running at full capacity or so. The future is likely to be of the same vein with operational leverage stemming from the July 2016 Main Tape acquisition in the US: not big in absolute terms but spot on in terms of avoiding early capex.
The serious good news stems from the Fashion Technologies business. The recently-introduced moniker is consistent with its delivery. Gains recorded with major fashion brandnames including luxury ones plus positive seasonal effects have led to rocketing EBITDA margins at 9.4% vs. 6.5% a year ago. Management is stressing the fact that what seasonal business has been collected in H1 will not show up in H2 but it is a fact that the dynamics of Fashion Technologies have moved on from staid and boring to high tech products meeting fashion-driven demand. This may last.
The little one business, Technical Substrates, after a powerful start in 2015, is hardly taking a breath with widening EBITDA margins on 18% revenue growth. This is good news.
Lastly, the Wool division, although it continues to look at a distance from other businesses as it is driven on a capital return basis, is also delivering a 20% underlying operating profit gain on contracting volumes. That was not expected.
We are impressed by the speed at which the still new governance has triggered over cautious Chargeurs into an ambitious growth proposition built on the mastery of niches with a world scope. As a reminder, Chargeurs is tiny but has had a world reach throughout its complex history.
We duly raised our EPS expectations for this year by 4% and next by about 14% and our target price by 16%. This is an understated target price as we kept the lid on the SOTP which would deserve more and we refrained from expressing more of the tax assets. Barring a deep recession, Chargeurs has moved into low risk territories.
