Research Dynamics - Report on CPH: Advancing global expansion strategy and focus on operational efficiency

Advancing global expansion strategy and focus on operational efficiency

Muted results amid mixed market trends

CPH Group (CPH) reported net sales of CHF 176.0 mn for 1HFY25, marginally down by 0.5% year-on-year (YoY) or down 5.1% organically as 8.2% growth from acquisitions was offset by 3.5% FX headwinds. EBITDA remained unchanged at CHF 30.2 mn, resulting in an EBITDA margin of 17.2% (1H24: 17.1%), impacted by FX headwinds, an unfavourable product mix and a higher cost base following the spin-off of the Paper Division. Group EBIT declined 6.8% YoY to CHF 21.9 mn, with the margin narrowing to 12.5% (1H24: 13.3%) due to higher acquisition-related depreciation and amortisation. The net result came in at CHF 17.1 mn, down CHF 4.0 mn YoY, reflecting the absence of prior-year one-off gains and increased financial expenses from recent acquisitions. Free cash flow before acquisitions was CHF -1.8 mn due to seasonal working capital requirements. Net debt stood at CHF 30.3 mn with a solid equity ratio of 54.3%.

Segmental performance

Zeochem: Net sales declined 7.2% YoY to CHF 57.5 mn in  (-8.3% organically), impacted by lower lithium prices, cautious customer ordering, weaker demand for industrial gas molecular sieves, and adverse FX effects. Although demand remained strong for high-value molecular sieves and deuterated solvents, demand for industrial gas sieves lagged prior-year levels. Additionally, overcapacity in China has led to ongoing pricing and margin pressure across the molecular sieve market. EBITDA rose 17.4% YoY to CHF 12.2 mn, with the margin expanding to 21.2% (1H24: 16.7%), while EBIT increased 15.0% YoY to CHF 8.0 mn (1H24: CHF 7.0 mn), with the corresponding margin at 14.0% (1H24: 11.3%). The ongoing integration of Sorbchem India is progressing as planned and supporting regional growth, with capacity utilisation remaining high at key production sites in Rüti and Louisville. Headcount grew 9.8% YoY to 393 FTEs during the period.

Perlen Packaging: Net sales increased 3.1% YoY to CHF 118.4 mn, though declined 3.4% on an organic, constant-currency basis. During the period, Perlen Packaging saw higher capacity utilisation across sites in Switzerland, Germany, and China, while sales volumes at its Brazilian plant nearly doubled YoY. With customer destocking largely complete, order volumes recovered compared to prior year period, while PVC prices remained stable albei at elevated levels following the pandemic. EBITDA fell 12.6% YoY to CHF 17.8 mn (1H24: CHF 20.4 mn), with the corresponding margin narrowing to 15.0% (H1 2024: 17.8%), impacted by FX headwinds, an unfavourable product mix, and higher costs following the Paper Division spin-off. EBIT fell by a more significant 20.2% to CHF 13.6 mn (1H24: CHF 17.1 mn), with the EBIT margin decreasing to 11.5% (1H24: 14.9%) due to higher acquisition-related depreciation and amortisation.

Outlook for FY2025

The first half of 2025 was characterised by an unfavourable economic climate, with mounting geopolitical tensions and trade disputes fuelling uncertainty and hindering global economic growth. This caused many companies to postpone orders and investments. CPH Group also experienced the impact of slowing demand in its key markets and the weaker US dollar. Although the outlook for the second half is encouraging, the environment remains volatile amid ongoing economic and geopolitical challenges.

Group: Despite ongoing economic and geopolitical uncertainties, the outlook for the second half of 2025 remains positive. The CPH Group reaffirms its initial projections for the year and continues to anticipate a modest improvement in both earnings and net results compared to 2024

Zeochem: The integration of Sorbchem and SiliCycle, along with capacity upgrades in Rüti and process improvements in the US, is scheduled for implementation in FY2025. Although net sales for the year are expected to be lower than in 2024, EBITDA is anticipated to exceed last year’s levels.

Perlen Packaging: Perlen Packaging expects to see continued growth in new order volumes in 2HFY25 compared to the same period last year, thanks to the planned launch of a fully automated packaging plant in Brazil. Full-year 2025 net sales are expected to exceed 2024 levels, with EBITDA projected to remain broadly in line with the previous year.

Valuation and conclusion

The Packaging and Chemistry divisions offer a favourable long-term outlook, and the operating results of these divisions are expected to remain resilient. Apart from a supportive outlook, the cost optimisation efforts are expected to result in margin improvement for the EBITDA margins to remain in the 16-18% range going forward, which should lead to solid earnings growth.

We value CPH using DCF and relative valuation techniques. Our intrinsic value of CHF 92.5 per share implies an upside of 23.3% from current levels. For relative valuation, since the Group operates in two entirely different divisions, we compare CPH’s divisions with various sets of relevant industry peers. We have employed three parameters – EV/EBITDA, P/S, and P/E – to analyse the relative valuation of the Group. CPH currently trades at an EV/EBITDA multiple of 8.3x (FY2025e), a 29.0% discount to the weighted average multiple of division peers.