The recent orders in the LCV and rail transport segments illustrate Delignit's (BE:DLXG) ability to deliver customised solutions and foster technological advancements in ecological materials. Dependence on the domestic market is also gradually reducing as the group is diversifying its revenue base globally. Delignit posted a 9.2% revenue CAGR in FY12-16 and management’s guidance is for a 10-15% sales increase in FY17, which is reflected in an FY16 P/E multiple of c 33x.
Niche position as wood-based industrial supplier
Delignit has built strong niche capabilities in developing customised system solutions using beech wood, primarily for the LCV, rail transport and safety equipment industries. In Germany, the company has a good market position because of its products’ ecological and technological characteristics and its advisory capabilities. Building on its success in Germany, the company has expanded globally in recent years. A focus on expanding product applications should enable it to capitalise on the positive outlook for the auto industry.
FY16 sales momentum continuing into FY17
In FY16, Delignit sales grew robustly at 9.4% and the EBITDA margin was stable at 7.5%. With over 70% of sales derived from the automotive industry, the company is well positioned to benefit from the favourable outlook for the industry. Over the last 12 months, the company has secured large, repeat orders from existing and new Original Equipment Manufacturers (OEM). Management has provided guidance of 10-15% sales growth in FY17. Costs are likely to remain under control and the company has guided for an EBITDA margin of 7.5-8.3% vs 7.5% in FY16. According to management, economies of scale from Delignit’s ongoing investment programme could increase margins in the medium term.
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