Fiberweb – QuickView

Share price gains have acknowledged the internal progress achieved in the past 18 months and now attention turns to the injection of greater impetus into Fiberweb’s product portfolio. Management has some attractive sector positions and the resources with which to uprate their profitability. Execution, therefore, is key and we expect to see progressive margin improvements, led by investment.

Turnaround Comes Through In FY12 Results
The net effect of a major turnaround in geotextiles’ performance partly offset by technical fabrics’ weakness in Europe drove a material (almost 40%) uplift in underlying operating profit. Supplemented by sharply lower interest costs from the (post hygiene disposal) transformed balance sheet, Fiberweb’s financial results were significantly improved. Notwithstanding regional and sector variation greater H1/H2 stability at the group level is encouraging. The next phase of development is the reinvestment of resources (end December net cash £14.5m, FY13e EBITDA c £30m) to raise the profit base and returns of the company. This is already underway through R&D, capex and £5-15m acquisitions are also on the radar

Next Focus To Drive Forward Revenue And Profit Growth
Fiberweb has undertaken a major corporate overhaul in the past 18 months (eg divisional sale, site rationalisation, geotextile turnaround, pension deficit repairs and new banking facility). While there is more to do (eg group IT roll out and US logistics centre), fewer corporate distractions ought to allow management to drive revenue and operational performance harder with P&L benefits to follow. The proposition is one of incremental progress on a number of fronts rather than a single game changing development and, in our view, it is reasonable to expect gathering gains to be reflected in a series of rolling consensus upgrades in due course.

Valuation: More To Come, Upgrades And Gains
Fiberweb’s share price has made fairly consistent, measured gains (with the odd pause) since the beginning of 2012. A P/E ratio of 13.0x for the current year is looking fairly full (EV/EBITDA c 4.4x less so), but has scope for uplift on successful delivery of the strategic goal to raise margins. A dividend increase was not expected; the 3.7% yield is attractive and pay-out growth is possible though cover does need to be rebuilt to some degree.

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