Santander: Maintain Viscofan; growth insufficient for revaluation

Viscofan has published sales data for Q119. Sales income grew 7% compared to Q118. This figure has not surprised us, although we recognise that without more details it is difficult to evaluate fully Viscofan´s income performance in Q119.

Our first interpretation of this figure is between neutral and negative, given that, according to our estimates, this implies zero growth in recurrent sales of casings, compared to the 3% growth foreseen by the company in 2019 (growth of 2% in volume and 1% in prices). We consider that the base for comparison in recurrent sales (that is without taking account of currency movements and acquisitions) is not demanding, given that they grew 2.6% yoy in Q118. We also have to take into account the growth in recurrent sales of 4% registered in Q418.

The lack of details about the sales figures makes us cautious when interpreting the information published. To begin with, we do not know exactly what has been the contribution of Globus in Q119; we estimate a contribution of 4 percentage points to sales in 2019, according to what was indicated in the acquisition announcement (55 M Australian dollars), but we cannot rule out that Globus is being restructures and that, therefore, income for the moment is lower. Secondly, perhaps we have overestimated (or underestimated) the impact of exchange rates on income. Overall, from the published data, we estimate income of 201 M€ for Q119: (1) 0 percentage points in volume and prices; (2) 3.4 percentage points from favourable exchange rate movements; and (3) 4 percentage points from the integration of Globus.

This figure is still in line with Viscofan´s forecast for 2019 (income growth between 6% and 8%), which the company repeated when publishing this data, in the prelude to the ordinary shareholders meeting on 12 April. In addition, Viscofan commented that it foresaw cost savings in Caseda in the second half of 2018. Growth in EBITDA will conceivably continue during the whole of the year, given it faces a base of comparison easy to beat in the first half of 2019 and an improvement in plant efficiency in the second half of 2019. Viscofan´s forecast for recurring EBITDA is growth of 10-13%, and we find ourselves slightly below this (c.9%). After this advance of income data, we see no reason to revise our estimates.

We recommend Maintain Viscofan as we foresee a return on employed capital (ROCE) of 12-23% and recent growth does not seem sufficient to drive a revaluation of the current stock market level of 18X EV/EBITDA. An improvement in the inflationary environment, to the extent that all competitors adopt more rational price strategies, could encourage us to adopt a more positive posture on the company´s stock price.