H1 profit well ahead of market expectations and confirmation of the successful sale of Biolink are fitting endorsements of Blue Cap's (DE:B7EG) investment strategy. Indeed, more of the same appears on the cards with full-year management guidance of strong momentum, notably in the turnaround of Neschen AG (F:NSNG), as well as new investment opportunities, which the now de-geared company is well-placed to seize. Despite a buoyant share price (up over 50% since our positive initiation report in July), the rating remains attractive at under 9x 2017e EV/EBITDA on seemingly cautious consensus forecasts.
H117 profit surprise
Although initial full inclusion of Neschen predictably drove a step change in revenue (+73%) in the half to June, there was justifiable satisfaction in markedly steeper progress at the bottom line. A doubling of EBITDA (yet more impressive at the pre-tax level), adjusted for the Biolink disposal gain, showed not only clear enhancement of 2016 purchases, Neschen and Carl Schaefer precious metals, but lucrative development of existing businesses in Adhesives, Coating and Medical Technology. There was disappointment only in Production Technology as a result of restructuring. The sale of Biolink for c €39m all but cleared net debt at end June.
Consensus may still be too low
After a bumper H1, Blue Cap’s guidance simply of positive full-year profit growth looks conservative, eg H1 EBITDA of €7.4m alone exceeded its €6.8m in FY16. For their part, consensus forecasts of €9m 2017 EBITDA mean just €1.6m outturn in H2, which, even after adjusting for the absence of Biolink profit (estimated €2m), implies at €3.6m a halving in the second half of H1’s cum-Biolink EBITDA, which looks unrealistic. 2017 revenue assumptions also appear cautious, if to a lesser extent than profit. It follows that consensus 2018 expectations seem low.
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