Blue Cap — Weathering the storm relatively well

Blue Cap (DB: B7E)

Last close As at 20/04/2024

26.60

−0.20 (−0.75%)

Market capitalisation

117m

More on this equity

Research: Industrials

Blue Cap — Weathering the storm relatively well

Blue Cap has performed relatively well during the coronavirus pandemic. Reported revenues rose 8% in H120 while organic decline was limited to 12%, despite exposure to the industry sector including automotive. For FY20, Blue Cap expects a slight decline in revenues (also due to portfolio changes) and a significant decline in adjusted EBIT. Despite positive and negative swings in the NAV of the individual holdings, Blue Cap’s overall NAV remained broadly unchanged at €138.5m at H120. The current share price reflects a large discount of 46% to the NAV per share of €34.68.

Johan van den Hooven

Written by

Johan van den Hooven

Analyst

Industrials

Blue Cap

Weathering the storm relatively well

Industrials

Scale research report - Update

18 September 2020

Price

€18.75

Market cap

€75m

Share price graph

Share details

Code

B7E

Listing

Deutsche Börse Scale

Shares in issue

4.0m

Net debt at 30 June 2020

€42m

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 nine shareholdings.

Bull

Proven business model and management.

Strong finances set for boost from transformative transactions.

Economic downturn enhances 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 has performed relatively well during the coronavirus pandemic. Reported revenues rose 8% in H120 while organic decline was limited to 12%, despite exposure to the industry sector including automotive. For FY20, Blue Cap expects a slight decline in revenues (also due to portfolio changes) and a significant decline in adjusted EBIT. Despite positive and negative swings in the NAV of the individual holdings, Blue Cap’s overall NAV remained broadly unchanged at €138.5m at H120. The current share price reflects a large discount of 46% to the NAV per share of €34.68.

Higher revenues in H120 due to acquisitions

Blue Cap reported a revenue increase of 8% to €114m in H120, which was mainly driven by the acquisition of Con-Pearl in September 2019. Organically, the decline in revenues was 12%, which is a solid performance given the general effect of the coronavirus pandemic on industrial companies. Blue Cap focused on cost savings and made use of Kurzarbeit (reduced working hours), which limited the decline in adjusted EBITDA to 21%. Mainly driven by the proceeds from the sale of Em-Tec (Medical) at the end of April, net profit increased to €15.6m, up from €4.2m last year.

Slight revenue decline expected for the full year

Assuming no severe coronavirus second wave, Blue Cap expects reported revenues for FY20 to be slightly below last year’s level. The effect from the full consolidation of Con-Pearl will be lower compared to H120 as it already contributed for four months in H219, while both Em-Tec (divested) and SMB-David (insolvent) will not contribute to revenues. For FY20, Blue Cap expects a significant decline y-o-y in adjusted EBIT, after the 72% decline to €1.3m in H120.

Valuation: Large discount to NAV

Blue Cap’s NAV was broadly stable at €138.5m. The NAV of its segments declined 31% to €88.1m, particularly in Coatings and Production, but also due to the divestment of Medical. This was offset by the proceeds from the sale of Medical, the higher NAV of Plastic after the restructuring effects at Con-Pearl and the change to fair value accounting of Inheco (42% stake) instead of the book value. Inheco showed strong growth as it is an important supplier for the so-called PCR test to detect coronavirus and through the development of vaccines and medicines. The increase in Inheco valuation had a positive effect of €5.75 on the NAV per share. Blue Cap is trading at a discount of 46% to the NAV per share of €34.68.

Consensus estimates

Year
end

Revenue
(€m)

Adj EBITDA
(€m)

Net profit
(€)

EPS
(€)

DPS
(€)

EV/EBITDA
(x)

12/18

176.0

8.6

12.5

3.14

0.75

11.7

12/19

225.6

14.3

2.8

0.71

0.75

9.6

12/20e

219.0

12.0

15.4

3.86

0.75

10.4

12/21e

235.0

17.5

1.8

0.45

0.75

7.0

Source: Blue Cap, Refinitiv (based on one analyst)

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.

Higher revenues in H120 due to acquisitions

In H120, Blue Cap’s reported revenues increased 8% to €114m, driven by the consolidation of Con-Pearl, which added 20% to revenues. The organic revenue decline of 12% is a good performance given the effect of the coronavirus pandemic on industrial companies, and automotive in particular. In reaction to the coronavirus pandemic, Blue Cap focused on cost savings and made use of Kurzarbeit (reduced working hours). As a result, the decline in adjusted EBITDA was limited to 21%, ending up at €6.0m. The proceeds from the divestment of Em-Tec resulted in exceptional income of €21m, which was partly offset, among other things, by the costs of €2.4m related to the insolvency of SMB-David. Including the total net adjustments of €16.5m, net profit came in at €15.6m compared to €4.2m last year. Inheco (minority stake of 42%) strongly benefited from the coronavirus pandemic. This medical technology manufacturer has become an important supplier for the so-called PCR test to detect coronavirus infection and through the development of vaccines and medicines.

Exhibit 1: Revenues by segment (H120)

Exhibit 2: Revenues by geography (FY19)

Source: Blue Cap, Edison Investment Research

Source: Blue Cap, Edison Investment Research

Exhibit 1: Revenues by segment (H120)

Source: Blue Cap, Edison Investment Research

Exhibit 2: Revenues by geography (FY19)

Source: Blue Cap, Edison Investment Research

In April 2020, Blue Cap announced the divestment of its medical subsidiary Em-Tec to Dover Corporation for net proceeds of €25m. The divestment of Em-Tec in April 2020 did not have a large negative affect on revenues as the company reported €4.2m in revenues in the four months in 2020 (vs €5.0m in H119), but will become more visible in H220.

In July 2020, Blue Cap announced the insolvency of production subsidiary SMB-David. This relatively small company was poorly performing over the past few years and the coronavirus pandemic made the situation worse. In 2019, SMB-David represented 4% of total revenues, but only 1% of net asset value (NAV) and contributed negatively to adjusted EBITDA (1.4%). The insolvency of SMB-David led to costs of €2.4m and the liquidation process might take a few years. However, a possible sale of this asset could still generate positive proceeds for Blue Cap.

Exhibit 3: Blue Cap H120 results

€m

H119

H120

% change

Revenues

105.5

113.9

8%

Total income

106.6

119.1

12%

EBITDA adjusted

7.7

6.0

-22%

EBITDA adjusted, margin (based on net revenues)

7.3%

5.3%

Depreciation & amortisation

(3.2)

(5.2)

Result participations

0.3

0.6

EBIT adjusted

4.8

1.3

-72%

Net financial income

(0.9)

(1.3)

Adjustments/exceptionals

0.2

16.5

Income taxes

0.1

(1.0)

Net profit

4.2

15.6

Number of shares outstanding (m)

3.98

3.98

EPS (€)

1.05

3.92

Source: Blue Cap, Edison Investment Research

Segment performance: Plastic is a driver for growth

Coronavirus-related declines were evident in the Coatings, Adhesives and Production segments, whereas Plastic and Precious Metals showed a much better performance. Coatings had a good start of the year but a significant drop in revenues in April resulted in a 19% decline in H120 revenues and a 120bp lower adjusted EBITDA margin. Adhesives reported a decline in revenues of 18%, with declines of 30% in Italy and France and a more modest decline of 15% in Germany. The Production segment was significantly affected by the coronavirus pandemic and reported a decline in revenues of 56% and a loss at adjusted EBITDA level of €1.4m compared to a profit of €1.6m last year.

Plastic reported a jump of 69% in revenues due to the first-time contribution of Con-Pearl. Knauer-Uniplast performed relatively well during the coronavirus pandemic as it delivers plastic packaging to the fast-moving consumer goods sector, which was less affected compared to other sectors. The organic decline in revenues of 6% was mainly due to problems with one of the machines and the planned loss of unprofitable orders.

Precious metals benefited from the higher gold price and higher trade volumes and reported an increase in revenues of 61%, but the adjusted EBITDA margin remained relatively low at 3.4%. compared to Blue Cap’s average of 5.3% in H120 (margin based on net revenues).

Medical was divested at the end of April but still contributed €4.2m to the H120 revenues, with a clearly above average adjusted EBITDA margin of 17.2%.

Exhibit 4: Results per segment H120

€m

Companies included

H119

H120

% change

Coatings

Neschen

32.4

26.3

-19%

Adhesives

Planatol

17.8

14.6

-18%

Plastic

Knauer-Uniplast, Con-Pearl

28.4

48.1

69%

Production

Gämmerler, SMB-David, Nokra

12.3

5.4

-56%

Medical (divested in April 2020)

Em-Tec

5.0

4.2

-16%

Precious metals

Carl Schaefer

9.5

15.2

61%

Other

0.1

0.2

78%

Total revenues

105.5

113.9

8%

Coatings

3.6

2.6

-27%

Adhesives

1.1

0.7

-36%

Plastic

0.0

2.5

N/A

Production

1.6

(1.4)

N/A

Medical (divested in April 2020)

0.9

0.7

-19%

Precious metals

0.3

0.5

70%

Other

0.2

0.3

31%

Total EBITDA adjusted

7.7

6.0

-22%

Coatings

11.2%

10.0%

Adhesives

6.3%

4.9%

Plastic

-0.2%

5.2%

Production

12.8%

-25.4%

Medical (divested in April 2020)

17.9%

17.2%

Precious metals

3.2%

3.4%

Total EBITDA margin (adjusted)

7.3%

5.3%

Source: Blue Cap, Edison Investment Research

Outlook: Slight decrease in revenues expected

For 2020, Blue Cap expects a slight decrease in revenues and a significant decline in adjusted EBIT. This breaks down in guidance per segment as follows: in Coatings, Adhesives and Production, management expects revenues and adjusted EBIT to be significantly lower compared to last year, mainly due to the effect of the coronavirus pandemic. Precious Metals is expected to post slightly higher revenues and adjusted EBIT due to higher trade volumes and the positive development of the gold price. Plastic revenues are expected to be significantly higher, with adjusted EBIT guided above the previous year, due to the consolidation and restructuring at Con-Pearl.

Management will remain focused on M&A, although activity levels have recently been low due to the coronavirus pandemic. There are possibilities of add-on acquisitions in Coatings, Adhesives and Plastic, while the two remaining production companies do not seem to be in Blue Cap’s focus any longer because of their small size. Management also expects a first real estate sale in H220, concerning a production and warehouse facility leased to third parties, which is part of Production (assets held for sale amounted to €1m on the mid-year balance sheet).

There is no significant news to mention about Partnerfonds (46% stake in Blue Cap), which has announced the start of the liquidation of the company including its holdings from January 2021. The transfer/sale of the shares in Blue Cap is most likely at the end of the liquidation process, which might take a few years. This transfer of shares might have different advantages to the shareholders, for example an increase of the free float or the division of the stake into smaller holdings.

Valuation

Blue Cap values its business units using a discounted cash flow model, which is based on the individual H120 results and planning until 2024. Blue Cap has kept the average perpetual growth rate stable at 1.5% compared to year-end 2019 but has raised the average WACC to 7.5% from 6.1% at year-end 2019 (based on the average WACC of selected peers). Exhibit 5 shows the development of the NAV of Blue Cap in H120 compared to FY19. Despite the broadly unchanged NAV of €138.5m there were six significant swing factors, of which three were positive and three negative. The three negative factors were: 1) the divestment of EM-Tec lowered the NAV by €14m, 2) the revised business plan for Coatings, combined with a peer driven higher WACC, lowered the NAV of this segment by €21.4m and 3) the effect of the coronavirus pandemic on the production units was significant resulting in a decline in NAV of €9.3m. The three positive factors were: 1) the proceeds of the sale of Em-Tec resulted in a net cash position at holding level of €12.3m, versus net debt of €2.8m at year-end 2019, 2) the successful restructuring of Con-Pearl has lifted the profitability of the Plastic segment and the NAV by €5.9m and 3) Blue Cap now values its 42% stake in Inheco at fair value instead of book value, which lifted the NAV from €3m to €26m. The last factor had a major positive impact on the NAV, which would otherwise have seen a significant drop compared to FY19.

The NAV per share only declined by 2% to €34.68, which compares to the current share price of €18.75. Blue Cap’s book value per share increased to €20.8 compared to €16.8 at year-end 2019.

Exhibit 5: Blue Cap NAV (€m)

Segments

FY19

H120

Change y-o-y

Coatings

60.9

39.5

-35%

Adhesives

15.9

14.2

-11%

Plastic

22.1

28.0

27%

Production

12.2

2.8

-77%

Medical (divested in April 2020)

14.0

0.0

-100%

Precious Metals

3.5

3.6

3%

NAV business units

128.6

88.1

-31%

Net cash/(debt) at the holding level

(2.8)

12.3

Real Estate value (book value minus debt)

12.4

12.1

Minority stakes (market value, previously book value)

3.0

26.0

NAV Blue Cap group

141.2

138.5

-2%

NAV per share (€)

35.48

34.68

-2%

Source: Blue Cap, Edison Investment Research

Based on Refinitiv consensus estimates, Blue Cap is currently valued at an EV/EBITDA of 7.0x for 2021e, which is relatively low when compared to the company’s historical EV/EBITDA multiples in 2018 and 2019 of 11.7x and 9.6x, respectively.

General disclaimer and copyright

Any Information, data, analysis and opinions contained in this report do not constitute investment advice by Deutsche Börse AG or the Frankfurter Wertpapierbörse. Any investment decision should be solely based on a securities offering document or another document containing all information required to make such an investment decision, including risk factors. This report has been commissioned by Deutsche Börse AG and prepared and issued by Edison for publication globally.

Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

More on Blue Cap

View All

Latest from the Industrials sector

View All Industrials content

Research: Healthcare

Shield Therapeutics — US partner next major inflection point

Shield Therapeutics’ (STX’s) interim results highlight the progress made year to date. Re-analysis of the Feraccru/Accrufer AEGIS-H2H data show it is a credible alternative to IV iron therapy for iron deficiency anaemia (IDA) in the long term. With the product out-licensed in China to partner ASK Pharm, all eyes remain on the announcement of a US commercial partner (expected this year). Royalties received from H120 sales of the product (UK and Germany) by partner Norgine are slowly building, but pricing and reimbursement discussions resuming in Europe could lead to ongoing rollouts in key countries (France, Spain and Italy) in 2021. STX’s cash runway extends into Q121, an upfront licensing payment from a US deal would ameliorate the need for further capital. We value Shield at £379.1m.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free