Viscofan: Waiting for signs of stabilization

Renta 4 | Due to a more adverse market environment than initially anticipated and the increased competitive pressure in Southeast Asia and Europe, VIS revised downwards its 2019 guide, slightly in revenue (-1%) and more markedly in recurring EBITDA ( -7%) and recurring net profit (-18%). The new estimates consider an increase in sales + 5 / + 7% and recurring EBITDA + 2 / + 5% and a fall in recurring net profit -6 / -12%.

Negative impact of African swine flu in China

It is an infectious disease that mainly affects pigs, causing their death. The sacrifices that are being made to control its propagation have as a consequence a smaller amount of pig in China, so to fill the gap it is being imported from the rest of the world, resulting in an increase in prices. VIS’s leadership position and its multi-technology approach can serve as an opportunity (substitution effect) to mitigate the negative impact.

Estimates update

Along with the new 2019e guide, we revised downwards the volumes of envelopes that in 2019e would be flat, with the organic growth of + 2% explained by the price increase. The currency would have a positive impact of + 2pp and the perimeter change of others + 2pp. From 2020 we foresee a gradual but slow recovery of volumes. Regarding margins, despite 1) the savings derived from Cáseda, 2) the slight acceleration in volumes during 2H19 and 3) the lower energy costs, the lower contribution of regions with high margins will be negative. The recovery would begin in 2020 with standardized medium-term levels close to 26%.

Our recommendation: Maintain

We reach a OP 2020e of 48.60 eur / share (-18% vs. previous) through a DCF, applying a WACC of 7.5% (vs. 7.0% earlier) collecting the greatest uncertainty. Quarterly results and the 2020 guide will be important to calibrate the evolution of volumes and margins in search of signs of recovery. Despite the potential of + 17% we adopt a cautious position reiterating our Maintain recommendation.