Blue Cap — Strong margin improvement in H121

Blue Cap (DB: B7E)

Last close As at 24/04/2024

26.60

−0.20 (−0.75%)

Market capitalisation

117m

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Research: Industrials

Blue Cap — Strong margin improvement in H121

Blue Cap reported a strong set of results in H121. Revenues rose 6% y-o-y to €121m and the adjusted EBITDA margin improved 330bp y-o-y to 8.4%. After the acquisition of HY-LINE in early August, Blue Cap updated its FY21 guidance to revenues of €265–275m and an adjusted EBITDA margin of 8–9%. Group NAV increased by 1% to €155m, as the contribution from acquisitions was offset by higher net debt. Driven by the strong performance and several acquisitions, the discount to group NAV declined from 30% at end FY20 to 17% currently.

Johan van den Hooven

Written by

Johan van den Hooven

Analyst

Industrials

Blue Cap

Strong margin improvement in H121

Industrials

Scale research report - Update

10 September 2021

Price

€29.20

Market cap

€128m

Share price graph

Share details

Code

B7E

Listing

Scale (Frankfurt), m:access (Munich)

Shares in issue

4.4m

Net debt at 30 June 2021

€60m

Business description

Blue Cap is a Munich-based industrial holding company, investing in medium-sized manufacturing companies with a turnover range of €30–80m. Blue Cap currently has 10 shareholdings.

Bull

Proven business model and management.

Strong finances set for boost from transformative transactions.

Economic downturn could provide buying opportunities.

Bear

Execution risk in restructuring processes.

Valuation risk in identifying acquisitions.

Dependence on economic conditions, mitigated by diverse business and geographical mix.

Analyst

Johan van den Hooven

+44 (0)20 3077 5700

Blue Cap reported a strong set of results in H121. Revenues rose 6% y-o-y to €121m and the adjusted EBITDA margin improved 330bp y-o-y to 8.4%. After the acquisition of HY-LINE in early August, Blue Cap updated its FY21 guidance to revenues of €265–275m and an adjusted EBITDA margin of 8–9%. Group NAV increased by 1% to €155m, as the contribution from acquisitions was offset by higher net debt. Driven by the strong performance and several acquisitions, the discount to group NAV declined from 30% at end FY20 to 17% currently.

Clear effect of portfolio expansion

Blue Cap reported a 6% y-o-y increase in revenues to €121m in H121, completely driven by the acquisition of Hero from March 2021. The divisions showed large differences in performance, with Plastics (53% of H121 revenues) and Adhesives (14%) showing a good recovery in results, but a weaker performance in the other three divisions: Coatings, Metals and Production. Overall adjusted EBITDA jumped 74% to €10.5m, driven by cost savings initiated last year, good organic performance at Plastics and Adhesives and the contribution from Hero, which brings above average margins. The adjusted EBITDA margin increased by 330bp to 8.4%, within the guidance range for the full year.

Plastics and Adhesives drive growth in FY21

Blue Cap expects continued positive developments in the Plastics and Adhesives divisions, while the other three are expected to report lower revenues compared to FY20. On 5 August, together with the HY-LINE acquisition (annual revenues of €40–50m), Blue Cap updated its FY21 guidance to revenue of €265–275m (or 14–18% growth) and an adjusted EBITDA margin of 8–9% (FY20: 7.6%). On 12 August, Blue Cap increased its share capital by just under 10% by issuing new shares, partly using the gross proceeds of €10.8m to refinance the HY-LINE acquisition.

Valuation: Discount to group NAV declined in H121

In H121, the NAV of the business units rose 12% to €119m, compared to year-end FY20, due to the strong performance in Plastics, including the acquisition of Hero. Group NAV, which includes net debt at group level, minority participations and book value of real estate, was stable at €155m as the increase in Plastics was offset by higher net debt due to acquisitions. Blue Cap’s shares have performed well in the year to date, +65% to €29.20, driven by the strong FY20 results as well as several acquisitions, the last of which came after the mid-year NAV reporting date. Blue Cap is currently trading at a discount of 17% to the group NAV on 30 June 2021.

Consensus estimates

Year
end

Revenue
(€m)

Adj. EBITDA
(€m)

Net profit
(€)

EPS
(€)

DPS
(€)

EV/EBITDA
(x)

12/19

225.6

14.3

2.8

0.71

0.75

9.6

12/20

233.0

17.6

16.5

4.15

1.00

6.8

12/21e

269.6

23.0

3.6

0.82

0.88

9.1

12/22e

328.0

29.8

8.6

1.94

1.00

7.0

Source: Blue Cap, Refinitiv

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

Strong growth in EBITDA in H121

In H121, Blue Cap’s revenues increased 6% to €121m, driven by the acquisition of Hero (consolidated from March, contributing €13.6m to revenues). Overall results were affected by ongoing lockdown measures and supply chain constraints due to the shortage of electronics components.

Since the beginning of 2020, Blue Cap has made several portfolio changes, which had an impact on the development of results in H121. In April 2020, it divested its medical subsidiary em-tec (net proceeds of €24m) and in July 2020 it announced the insolvency of production subsidiary SMB-David (4% of revenues in 2019 and loss-making). These two companies had combined revenues of around €5m in H120, which did not reoccur in H121. Blue Cap made two acquisitions in H121, the first of which was a 71% stake in Hero (consolidation from 1 March). Hero develops and manufactures high-quality plastic parts and assemblies for car interiors and the household appliance industry. According to Blue Cap, Hero has annual revenues of around €40m and has more than 200 employees. In April, subsidiary con-pearl acquired the assets of Recyplast (from the estate of Fischer, which went into insolvency) for a low single-digit million amount. Recyplast specialises in the production of regranulates from various plastics. con-pearl now has two independent recycling sites via which it secures the supply of high-quality recyclates in sufficient quantity.

Adjusted EBITDA increased 74% to €10.5m, mainly driven by the cost savings initiated last year, strong organic performance at Plastics and Adhesives and the contribution of Hero, which carries an above average margin (mid-teens on an annual basis). The adjusted EBITDA margin (as a percentage of total income) improved 330bp y-o-y to 8.4%, within the guidance range of 8–9% for the full year.

The share in profit of associates increased from €0.6m in H120 to €1.1m in H121, after reporting €1.4m for FY20. These results mainly come from medical technology manufacturer Inheco, which benefited from the pandemic with its products for the so-called PCR test to detect coronavirus infection and through the development of vaccines and medicines.

Pre-tax adjustments/exceptionals amounted to -€1.9m (eg restructuring and advisory costs), compared to last year’s income of €16.5m, which was largely due to proceeds from the divestment of em-tec. As a result of the swing in these adjustments, EPS came in lower than last year at €0.36.

Exhibit 1: Blue Cap H121 results

€m

H120

H121

% change

Revenues

113.9

120.8

6%

Total income

119.1

124.6

5%

EBITDA adjusted

6.0

10.5

74%

EBITDA adjusted, margin

5.0%

8.4%

Share in profit/(loss) of associates

0.6

1.1

100%

EBIT adjusted

1.3

5.3

295%

Net financial income

(1.3)

(1.1)

-14%

Adjustments/exceptionals

16.5

(1.9)

-111%

Income taxes

(1.0)

(0.6)

-38%

Net profit

15.6

1.5

-91%

EPS (€)

3.92

0.36

-91%

Source: Blue Cap

Blue Cap’s financial position remained strong in H121, with an equity ratio of 37% and net debt/ EBITDA at 1.7x, well below the internal covenant of 2.75x.

Growth still driven by Plastics division

In an ever-challenging market environment, the results for each segment varied significantly (see Exhibit 2). The Plastics division was again the main driver of growth and overall results and now represents more than 50% of total revenues. con-pearl benefited from strong order flow and the reorganisation measures taken last year, while the acquisition of Hero from March significantly contributed to results. Uniplast faced significant price increases in raw materials but has been able to pass these on to its customers. The Plastics division now realises the highest EBITDA margin within Blue Cap, ie 11%. The Adhesives division also had a good first half of the year, despite supply chain constraints, and showed strong revenue growth and much better margins (particularly from April onwards).

The three other segments all faced the impact of the prolonged pandemic. Coatings reported lower volumes in products for exhibitions and other graphic applications, while also losing an important customer in industrial applications. In Metals, the volume of scrap gold delivered was below last year’s level. Production was affected by project delays and postponements, and reported 67% lower revenues of €1.8m, which was also due to the deconsolidation of SMB-David as at 30 June 2020. However, the operating loss at Production improved compared to last year due to reorganisation effects at Gämmerler (now focusing on the profitable service and spare parts business) and the deconsolidation of loss-making SMB-David.

The ‘other’ segment includes em-tec results up to April 2020 and holding costs. In H120, em-tec contributed €4.2m in revenues and €0.7m in adjusted EBITDA.

Exhibit 2: Results by segment H121

€m

Companies included

H120

H121

% change

Plastics

Uniplast, con-pearl, Hero, Recyplast

48.1

64.1

33%

Coatings

Neschen

26.3

25.4

-3%

Adhesives

Planatol

14.7

17.5

19%

Metals

Carl Schaefer

15.2

11.8

-22%

Production

Gämmerler, nokra, SMB-David (until June 2020)

5.5

1.8

-67%

Other, including intercompany

em-tec (until April 2020)

4.2

0.2

-95%

Total revenues

113.9

120.8

6%

Plastics

2.5

7.2

N/A

Coatings

2.6

1.9

-28%

Adhesives

0.7

1.8

155%

Metals

0.5

0.3

-43%

Production

-1.4

-1.1

N/A

Other, including holding and intercompany

1.0

0.3

-69%

Total EBITDA adjusted

6.0

10.5

74%

Plastics

5.1%

11.0%

Coatings

9.1%

7.1%

Adhesives

4.8%

10.2%

Metals

3.4%

2.5%

Production

-23.3%

-55.3%

Adjusted EBITDA margin*

5.1%

8.4%

Source: Blue Cap. Note: *As a percentage of total income.

Outlook: Growth supported by more acquisitions

On 5 August, Blue Cap announced the acquisition of a 93% stake in HY-LINE Verwaltungs, which has annual revenues of €40–50m and a purchase price in the lower third of the double-digit million range. During the last few years, HY-LINE has transformed from a distributor of electronic components into a product and system provider with an increased focus on technical consulting and development competence. Management expects HY-LINE to increase Blue Cap's EBITA and earnings per share by 20% or more in the first full year after consolidation (1 September 2021).

On 12 August, Blue Cap announced that it had increased its share capital by just under 10% by issuing new shares at a price of €27.02. Total gross proceeds of €10.8m will be partly used to refinance the acquisition of HY-LINE and for further growth of Blue Cap.

After the announcement of the HY-LINE acquisition, Blue Cap provided new revenue guidance for FY21 of €265–275m, up from €255–265m. The new forecast combines the lower end of the previous guidance range and the contribution from HY-LINE. Guidance for adjusted EBITDA margin was maintained at 8–9% (FY20: 7.6%).

In the medium term, Blue Cap aims to expand its portfolio from the current 10 companies to 12–15 companies and increase group NAV to more than €200m, up from €155m at mid-FY21. Management is also aiming to increase its market cap to more than €200m compared to the current €128m, but that is of course also influenced by external factors.

In May 2020, Blue Cap’s largest shareholder, PartnerFonds (44.6% stake), announced the start of its liquidation, including all its holdings. In the long term, its shares in Blue Cap also will be sold, without PartnerFonds having a deadline for completion of the whole process.

Valuation

Blue Cap values its different divisions using a discounted cash flow model based on the approved budget planning of the portfolio companies for 2021–23 and their extrapolation for the years 2024–25. It has kept the average perpetual growth rate stable at 1.5% compared to year-end 2020 and lowered the WACC to 6.5% compared to 6.6% at year-end 2020. The WACC is determined for each business unit based on individual peer groups. Exhibit 3 shows the development of Blue Cap’s NAV.

The DCF-based NAV of the business units increased by 12% to €118.8m on 30 June 2021 compared to year-end FY20, mainly driven by the further increase in value of the Plastics division, which now also includes Hero (valued at its acquisition cost, in line with the guidelines for private equity valuations). Metals showed a decline as a result of lower trading volumes and margins, but this subsidiary only accounts for 3% of the NAV. Group NAV only increased by 1% to €155m on 30 June 2021, compared to year-end FY20, as Blue Cap’s net cash position turned into net debt due to the financing of acquisitions. Group NAV of €155m on 30 June 2021 compares to the current market cap of €128m.

Exhibit 3: Blue Cap NAV (€m)

Segments

FY20

H121

Change

Plastics

42.3

56.9

35%

Coatings

42.9

42.8

0%

Adhesives

11.9

12.5

5%

Metals

5.6

4.0

-29%

Production

3.2

2.6

-19%

NAV business units

106.0

118.8

12%

Holding net cash/(net debt)

9.9

(1.9)

Real estate value (book value minus debt)

11.9

9.2

Minority participations (at market value)

26.1

29.1

NAV Blue Cap Group

153.9

155.2

1%

NAV per share (€)

38.58

38.82

1%

Source: Blue Cap

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