Balda's (XETRA:BAFG) growth acceleration in Q3 to 33% was driven by higher volumes to established customers and a 12% FX boost. Also, its Q3 EBITDA margin rose 3ppt to a new high of 11% on a recurring basis. The tail-end of Balda’s restructuring may result in further charges (€2.4m in Q3), but revenue growth looks likely to surprise on the upside. Using DCF, we value Balda at €221m/€3.76 per share, of which financial reserves comprises 87%.
Buoyant growth characterises Q3 results
Balda accelerated its sales growth to 33% in Q3, driven by 22% organic growth and, we estimate, a 12% FX boost. Strong growth in deliveries of diagnostic and diabetes care consumables to its existing lead customer stoked 29% revenue growth in Europe, while we estimate the US grew at a solid 15% underlying rate. With 5-10 current customer leads, each offering €5-10m annual sales potential after three years, we see scope for Balda’s revenue growth to sustain a double-digit rate.
Strong margin trend dented by temporary expenses
The Q3 EBITDA margin would have risen from 8% to 11% y-o-y excluding €2.4m non-recurring charges. Lower D&A absorbs the €0.4m increase in this charge to leave our FY15e EPS unchanged. Further litigation-related charges of a similar scale may be incurred in coming quarters, while underlying margins should rise, driven by improved overhead absorption, manufacturing efficiencies and product mix. Long term, Balda is set to benefit from its potential to double production volumes in its existing German facilities, with limited extra investment required.
Strategy furthered by drug delivery device acquisition
Balda enjoys financial resources to pursue external growth opportunities aiming to expand its geographic and customer reach. It acquired a liquid drug delivery device (Balda expects €0.5m sales in the first year after re-registration), strengthening its credibility as a supplier of advanced medical devices. Should M&A targets not prove value-enhancing, Balda may elect to make further exceptional dividends.
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