Exceeding guidance
Firstextile AG (XETRA:FT8)’s preliminary announcement shows that the group has outperformed guidance on FY14 revenues and EBIT. With the sale of Varpum at the end of the year, Firstextile has focused its resources on its stronger and more profitable core businesses. The announcement of a share buyback programme indicates continuing financial strength. Yet the shares trade on an inexpensive 2.7x FY15e earnings.
Better-than-expected FY14
Firstextile will release full financial details for FY14 on 29 April. However, it is clear from the preliminary figures that the company outperformed guidance and our expectations for revenues and EBIT. Revenues of €216m exceeded our estimate of €211.3m and EBIT of €41.3m beat our estimate of €35.8m. Higher revenue in the Fabrics and Uniforms divisions more than offset the decrease in the Branded Products segment, resulting from the unfavorable economic environment in China for corporate gifting. We have reflected the new guidance in our FY14 forecasts but will await detailed disclosure on FY14 and guidance on FY15 before changing estimates for FY15 and beyond. The strong FY14 performance suggests potential for upgrades.
Stronger base for FY15
At the time it floated, Firstextile planned to double its factory capacity by Q413, but the project suffered a number of delays. However, the preliminary announcement notes that the factory will “begin operation in the middle of 2015”. Given how close we are to this point, we derive considerable encouragement from the statement. The new facility will dramatically increase Firstextile’s growth potential. Having sold its loss-making Varpum retail business, the group is now fully-focused on developing its core markets.
Valuation: Inexpensive
Firstextile trades on only 2.7x FY15e earnings, before adjusting for the net cash position. The FY15e EV/EBITDA ratio is only 1.6x and the price-to-book ratio is 0.5x. These are very low valuation metrics, especially when viewed in the context of Firstextile’s outperformance in FY14, increased focus and proximity to commissioning the new factory. It is no wonder the board has sanctioned a share buyback program.
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