2023: Analysts Report

CONSUMER GOODS

QUADPACK

COMPANY CONTACT AFTER 2022/2023 RESULTS

PHASE 1 SUCCESSFUL, PHASE 2 OFF TO A GOOD START

The FY 2022/23 results Quadpack released yesterday confirm that the positive trends observed in H1 are continuing, with sales rebounding sharply (+29% lfl) and reported EBITDA margin expanding further (+1.7pt to 8.9%). The biggest news in yesterday's report was the significant reduction in debt achieved in H2 (-€10m to €40m excl. IFRS 16), this having been the main cause for concern in a rising rate environment. With the new CEO focused on sustainability and operational improvements, we expect the 2023/24 to see a return to more normal sales growth rates (+6% lfl), along with a sharp increase in profitability (reported EBITDA margin +2.3pts) and ongoing debt reduction (-€7m to €33m, or 2.2x adjusted EBITDA). As the market takes on board this substantial improvement in Quadpack's financial situation, the stock could start to regain some of the ground lost since early 2021. Still a BUY with a new TP of €30 (vs. €29).

Maxime Dubreil [phone]

[e-mail]

Report completed on 05/31/2023 7:30

Report published on 05/31/2023 7:43

Strong sales growth, earnings recovery confirmed in FY 2022/23

Quadpack reported FY 2022/23 sales (12 months to January 31st) of €142.6m (+34%), topping our €140.5m estimate. Organic growth (+29%) was particularly robust with the growth rate normalizing in H2 as anticipated (+12% vs. +51% in H1), especially at the Sourcing division (+14% vs. +69% in H1 for a FY gain of +34%). Organic growth at the Manufacturing business reached +15% in H2 after +29% in H1.

While robust sales did translate into earnings growth, operating leverage was not as strong as we had anticipated due to inflation. Reported EBITDA for FY 2022/23 came in at €12.6m (+65%) vs. our €13.6m estimate, lifting EBITDA margin to 8.9% (+1.7pt) vs 9.6% expected, EBIT at €2.7m (-€1.0m in 21/22) vs €5.1m exp. and net income at €1.0m (-€2.3m in 21/22) vs €2.5m exp.. Management notes that stripping out the plastics business in Spain (shut down early in 2023), EBITDA would stand at €13.5m.

Significant debt reduction in H2 allays concerns about the financial situation

Excluding IFRS 16, Quadpack's net debt fell from €44.2m at end 2021/22 to €39.7m at end 2022/23, below our €45.7m estimate. This performance is all the more noteworthy in that net debt had increased by €5.6m in H1, driven higher by the change in WCR (-€7.1m). In other words, WCR improved by +€10.5m in H2! While the increase in WCR was logical in H1, given the surge in sales and the need to secure inventories amidst supply chain disruptions, the speed of normalization took us by surprise.

The focus in 2023/24 will be on profitability and debt reduction

Quadpack's strategic plan through 2025 is designed to make it a leader in sustainable cosmetics packaging and improve its operating performances. While these objectives have not been expressed as financial targets (or at least the targets have not been made public), we understand from our discussions with management that in the near term, the focus will clearly be on boosting profitability and paying down debt. In 2023/24, we expect this strategy to lead to steadier lfl growth (+6%), while also allowing the company to considerably expand its reported EBITDA margin (+2.3pts to

11.2%) and continue to reduce its debt (-€7m to €32.8m excluding IFRS 16).	…/…

Invest Securities and the issuer have signed an analyst coverage agreement

in € / share	23/24e	24/25e	25/26e
Adjusted EPS	0,97	1,65	2,38
chg.	+239%	+70,0%	+44,9%
estimates chg.	-14,3%	-1,8%	n.s.
au 31/01	23/24e	24/25e	25/26e
PE	20,6x	12,1x	8,4x
EV/Sales	0,8x	0,7x	0,6x
EV/Adjusted EBITDA	8,1x	5,8x	4,3x
EV/Adjusted EBITA	15,0x	9,5x	6,4x
FCF yield*	5,5%	8,9%	12,8%
Div. yield (%)	n.s.	n.s.	1,3%

* After tax op. FCF before WCR

key points

Closing share price	30/05/2023	19,90
Number of Shares (m)		4,4
Market cap. (€m)			87
Free float (€m)			7
ISIN		ES0105118006
Ticker			ALQP-FR
DJ Sector	Producer Manufacturing
	1m	3m	Ytd
Absolute perf.	+0,0%	+5,9%	+4,7%
Relative perf.	+4,0%	+13,7%	+2,2%

Source : Factset, Invest Securities estimates

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CONSUMER GOODS

QUADPACK

FINANCIAL DATA

Share information	2018/19	2019/20	2020/21	2021/22	2022/23	2023/24e	2024/25e	2025/26e
Published EPS (€)	0,97	0,92	-0,36	-0,53	0,23	0,88	1,64	2,37
Adjusted EPS (€)	1,08	1,14	-0,11	-0,25	0,29	0,97	1,65	2,38
Diff. I.S. vs Consensus	n.d.	n.d.	n.d.	n.d.	n.d.	n.d.	n.d.	n.d.
Dividend	0,38	0,36	0,00	0,00	0,00	0,00	0,25	0,25
Valuation ratios	2018/19	2019/20	2020/21	2021/22	2022/23	2023/24e	2024/25e	2025/26e
P/E	24,0x	23,3x	n.s.	n.s.	77,6x	20,6x	12,1x	8,4x
EV/Sales	0,97x	1,12x	1,65x	1,45x	0,95x	0,80x	0,69x	0,59x
EV/Adjusted EBITDA	12,6x	12,8x	26,2x	25,5x	13,5x	8,1x	5,8x	4,3x
EV/Adjusted EBITA	16,1x	19,0x	n.s.	n.s.	39,4x	15,0x	9,5x	6,4x
Op. FCF bef. WCR yield	1,9%	2,2%	0,4%	0,1%	2,4%	5,5%	8,9%	12,8%
Op. FCF yield	8,0%	3,2%	2,2%	n.s.	4,9%	6,9%	8,1%	11,9%
Div. yield (%)	1,7%	1,4%	1,2%	n.s.	n.s.	n.s.	n.s.	1,3%
NB : valuation based on annual average price for past exercise
Entreprise Value (€m)	2018/19	2019/20	2020/21	2021/22	2022/23	2023/24e	2024/25e	2025/26e
Share price in €	26,0	26,5	30,6	25,2	22,1	19,9	19,9	19,9
Market cap.	99	107	132	110	97	87	87	87
Net Debt	2	36	36	44	40	33	25	15
Minorities	1	5	1	0	0	0	0	0
Provisions/ near-debt	0	0	1	1	1	1	1	1
+/- Adjustments	0	-1	-1	-1	-1	-1	-1	-1
Entreprise Value (EV)	102	147	168	154	136	120	112	102
Income statement (€m)	2018/19	2019/20	2020/21	2021/22	2022/23	2023/24e	2024/25e	2025/26e
Sales	104,7	131,0	102,0	106,4	142,6	150,1	161,3	172,6
chg.	+15%	+25%	-22%	+4%	+34%	+5%	+8%	+7%
Adj. EBITDA	8,1	11,5	6,4	6,0	10,1	14,8	19,2	23,5
Adj. EBITA	6,3	7,7	1,1	0,1	3,5	8,0	11,7	15,8
chg.	-18%	+22%	-86%	n.s.	n.s.	n.s.	+48%	+35%
EBIT	6,5	7,1	0,2	-1,0	2,7	7,5	11,7	15,8
Financial result	-1,4	-1,8	-2,3	-1,7	-2,4	-2,1	-1,8	-1,4
Corp. tax	-1,4	-1,4	0,8	0,1	0,5	-1,5	-2,8	-4,0
Minorities+affiliates	0,0	-0,2	-0,2	0,3	0,2	0,0	0,0	0,0
Net attributable profit	3,7	3,7	-1,5	-2,3	1,0	3,8	7,2	10,4
Adjusted net att. profit	4,1	4,6	-0,5	-1,1	1,2	4,2	7,2	10,4
chg.	-23%	+11%	n.s.	n.s.	n.s.	n.s.	+70%	+45%
Cash flow statement (€m)	2018/19	2019/20	2020/21	2021/22	2022/23	2023/24e	2024/25e	2025/26e
Adjusted EBITDA	8,1	11,5	6,4	6,0	10,1	14,8	19,2	23,5
Theoretical Tax / EBITA	-1,8	-2,2	-0,3	0,0	-1,0	-2,2	-3,3	-4,4
Capex	-4,4	-6,0	-5,4	-5,9	-5,8	-6,0	-6,0	-6,0
Operating FCF bef. WCR	1,9	3,3	0,7	0,1	3,3	6,5	9,9	13,0
Change in WCR	6,2	1,4	2,9	-1,4	3,5	1,7	-0,9	-0,9
Operating FCF	8,1	4,7	3,6	-1,3	6,7	8,2	9,0	12,1
Acquisitions/disposals	-0,5	-45,1	0,0	-4,0	0,5	0,0	0,0	0,0
Capital increase/decrease	0,0	13,7	-0,2	0,1	0,0	0,0	0,0	0,0
Dividends paid	-1,1	-1,2	0,0	-0,8	0,0	0,0	0,0	-1,1
Other adjustments	2,1	-5,9	-3,3	-2,1	-2,7	-1,3	-1,2	-0,9
Published Cash-Flow	8,6	-33,7	0,2	-8,1	4,5	6,9	7,8	10,1
Balance Sheet (€m)	2018/19	2019/20	2020/21	2021/22	2022/23	2023/24e	2024/25e	2025/26e
Assets	16,1	57,0	57,1	62,3	61,9	60,6	59,1	57,4
Intangible assets/GW	5,7	32,8	33,4	36,3	35,9	35,1	34,3	33,5
WCR	10,4	19,0	16,6	17,6	13,7	12,0	12,9	13,8
Group equity capital	23,5	35,0	36,5	34,7	35,3	39,1	46,3	55,6
Minority shareholders	0,5	4,6	0,5	0,2	0,1	0,1	0,1	0,1
Provisions	0,1	0,1	0,6	0,8	0,6	0,6	0,6	0,6
Net financial debt	2,4	36,2	36,1	44,2	39,7	32,8	25,1	15,0
Financial ratios	2018/19	2019/20	2020/21	2021/22	2022/23	2023/24e	2024/25e	2025/26e
Adjusted EBITDA margin	7,7%	8,8%	6,3%	5,7%	7,1%	9,8%	11,9%	13,6%
Adj. EBITA margin	6,0%	5,9%	1,0%	0,1%	2,4%	5,3%	7,3%	9,2%
Adjusted Net Profit/Sales	3,9%	3,5%	n.s.	n.s.	0,9%	2,8%	4,5%	6,0%
ROCE	23,8%	10,2%	1,4%	0,1%	4,6%	11,0%	16,3%	22,2%
ROE adjusted	17,6%	13,1%	n.s.	n.s.	3,5%	10,8%	15,6%	18,8%
Gearing	10,2%	103,6%	98,9%	127,2%	112,6%	84,0%	54,2%	26,9%
ND/Adjusted EBITDA (in x)	0,3x	3,2x	5,6x	7,3x	3,9x	2,2x	1,3x	0,6x

Source : company, Invest Securities Estimates

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CONSUMER GOODS

QUADPACK

Background: One of Europe's 10 leading cosmetics packaging suppliers

Founded in 2003, Quadpack is a Spain-based firm specialized in cosmetics packaging. It operates in a €20bn market (10% of the global cosmetics market) dominated by companies like Albéa, AptarGroup, Berry and RPC, and counts among Europe's ten leading players alongside Tupack, Groupe Pochet, Heinz-Glas, Verescence, Silgan and PSB Industries. While it works with cosmetics giants such as L'Oréal, Estée Lauder, Shiseido and Beiersdorf, Quadpack's main target is midsize companies (€50m to €1bn of sales) that allow it to optimize its profitability, including L'Occitane, Kiko Milano, Rituals and ISDIN.

Competitive universe for Quadpack

Source: Quadpack

Historically focused on packaging for skincare products (67% of H1 2022/23 sales), Quadpack has expanded its offering to include packaging for makeup (19%) and perfume (9%). This allows it to better address the needs of clients that are active in these three markets. Its broad product offering includes airless containers (stops contact between a product and the outside air to prevent oxidation), plastic jars made through injection molding, glass jars and bottles, and wood containers. In addition to packaging, Quadpack also offers decorating and finishing services (serigraphy, laser etching, hot stamping) in order to deliver finished products to its clients and keep most of the value-added in the packaging for itself.

In terms of business model, Quadpack has profoundly modified its strategy over the years. When it was founded in 2003, the company specialized in sourcing from Eastern Europe and Asia and reselling the products almost exclusively to small and midsize European companies active in the skincare mass market. Its 2013 takeover of Technotraf Wood Packaging (wood-based packaging) marked a shift to an industrial strategy. Quadpack has since made five acquisitions (Kamprak in 2014, Rinaplast in 2016, Louvrette and Inotech in 2019 and Wicklein in 2021) to bolster its production capacity in Europe (notably in Germany) and reduce its dependence on Asian suppliers. The Sourcing business accounted for almost 100% of sales in 2013/14, but by 2022/23 its share was just 55%, with Manufacturing contributing the other 45%. This strategic shift will clearly continue over the coming years, fueled by the COVID crisis (and its impact on supply chains) and consumers' increasing appetite for local and more responsible production, which confirms the wisdom of Quadpack's strategy, though it intends to maintain a dual business model.

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CONSUMER GOODS

QUADPACK

New CEO at the helm since September

On September 13 of last year, Quadpack announced that it had named Alexandra Chauvigné as its new chief executive officer effective September 1. She succeeded cofounder Tim Eaves, who remains chairman of the board. The shakeup was in keeping with good governance practices, which call for a separation of the CEO and board chair positions in order to improve transparency and accountability. It also allows Eaves to devote more time to social and environmental responsibility initiatives in the newly created role of chief impact officer.

Chauvigné has acquired considerable leadership experience over her 25-year career in the packaging industry. She previously served as general manager of the consumer packaging division of DS Smith, a global supplier of sustainable cardboard (2021/22 sales of £7.24bn). Between 2011 and 2020, she held various executive positions at Aptar, a global leader in dispensing packaging solutions: she was vice president for skincare and color cosmetics from 2018 to 2020 and, prior to that (2011-17), president, global market development for the brand's beauty business. Her expertise in product strategy and production optimization will be great assets to Quadpack with its current focus on these two areas.

As discussed in the outlook section below, Chauvigné is gradually making her mark on the company's strategy, giving priority to innovation and sustainability while simultaneously working to optimize profitability and reduce debt.

An ESG approach that continues to bear fruit

Quadpack has placed ESG at the heart of its strategy for several years now. As evidence of its commitment, the company achieved B Corp status two years ago, becoming the first cosmetics packaging firm to earn this certification. It has also joined the UN Global Compact, which aims to promote socially responsible attitudes in business. Additionally, Tom Eaves, former CEO and now board chairman, has been spearheading sustainable development initiatives since September 2022 in his role as chief impact officer.

The company continued to pursue its ESG goals at different levels in 2022/23, notably with a campaign to measure the impact of every product in its catalogue over its entire lifecycle. This analysis will shape Quadpack's product development strategy going forward, as it works to integrate eco-design principles, sustainable materials, refillable containers and single-material products that optimize recycling. Its different actions in this area include launching a stick for solid formulas with a PCR content of up to 42% and a refillable lipstick in a container that Quadpack makes with wood from sustainably managed forests.

In sum, Quadpack is continuing to step up its ESG initiatives, believing that this will remain a major differentiating factor in its industry and give it an increasingly large competitive edge going forward. Moreover, its efforts to sell more of its own products (45% of 2022/23 sales), made at its production sites in Europe (five facilities of which three in Spain, two in Germany), rather than products sourced from Asia, is proving quite popular with clients that are also facing pressure from consumers (e.g. L'Oréal's 2030 Plan and Beiersdorf's targets for 2025-30). At the same time, the use of plastic alternatives for cosmetics packaging (wood, metal, bio-sourced polymers) is perfectly in keeping with the times and will do a great deal to set the company apart. As we have reiterated many times now, we find this strategy smart and see it as a source of opportunities for the company.

The sharp rebound seen in H1 22/23 is confirmed

It should be recalled that the H1 2022/23 earnings Quadpack reported late last November showed very robust sales growth (+58% to €73.9m), well ahead of our estimate (+39%), thanks to (i) a post-Covid surge in order intake in H2 21/22, and (ii) the resolution of supply chain disruptions that had prevented the company from fulfilling

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QUADPACK

all its orders in H2 21/22.

Yesterday, the company reported FY 2022/23 sales of €142.6m (+34%; +29% lfl), whereas we were looking for €140.5m. This growth was fueled by the contribution from Wicklein (consolidation scope effect of +4pts) and a positive forex effect (+2pts), but organic growth was also quite strong (+29%) with, as was anticipated, a normalization in H2 (+12% following +51% in H1), especially at the Sourcing division (+14% in H2 after +69% in H1, for a full-year gain of +34%). Organic growth at the Manufacturing business, results for which are now broken down into three subsegments (plastic, wood and decoration), reached +15% in H2 following +29% in H1.

2022/23 reported results vs. estimates

in m€ (ended 31/01)	2021/22		2022/23
published figures	published	published	IS Estimates	diff.
Revenue	106,4	142,6	140,5	+2%
lfl change	+2%	+29%	+26%
change	+4%	+34%	+32%
Published EBITDA	7,7	12,6	13,6	-7%
change	-9%	+65%	+77%
EBITDA margin	7,2%	8,9%	9,6%
EBIT	-1,0	2,7	5,1	-46%
Net Profit	-2,3	1,0	2,5	-60%
		Source : Quadpack, IS estimates
in m€ (ended 31/01)	2021/22		2022/23
Adjusted figures	published	published	IS Estimates	diff.
Revenue	106,4	142,6	140,5	+2%
lfl change	+2%	+29%	+26%
change	+4%	+34%	+32%
Adjusted EBITDA	6,0	10,1	11,6	-13%
change	-6%	+67%	+91%
Adj. EBITDA margin	5,7%	7,1%	8,2%
Adjusted EBIT	0,1	3,5	5,1	-32%
Adjusted Net Profit	-1,1	1,2	2,6	-52%

Source : Quadpack, IS estimates

This strong sales trend translated into robust earnings growth as well, though operating leverage just missed our expectation. Reported EBITDA came in at €12.6m (+65%), short of our €13.6m estimate, and reported EBITDA margin rose to 8.9% (+1.7pt) vs. our 9.6% estimate. EBIT reached €2.7m (-€1.0m in 2021/22), whereas we were looking for €5.1m, and net income of €1.0m (vs. -€2.3m in 2021/22) missed our €2.5m estimate.

At a more granular level, reported EBITDA at the Manufacturing division was in line with our expectation (€5.9m, for a margin of 9.5% vs. €5.8m and 9.5% in our model), but leverage at the Sourcing division fell short (reported EBITDA of €6.8m, 8.3% margin vs. €7.7m and 9.7% in our model). Not only did strong sales growth in Sourcing fail to optimize margins, the division's gross margin also contracted (to 43.8%, down 3.1pts) due to higher raw material prices that were only passed through to customers gradually. Note that the FY result does not call into question the Sourcing division's potential to achieve a normative EBITDA margin of 10% to 11%. Management also mentioned that EBITDA would have ended the fiscal year at €13.5m if the closure of the plastics business in Spain was factored in (see 2023 outlook section below). Taking that change into account, EBITDA margin at the Manufacturing division would have reached 11%, underpinning our assumption about the normative margin potential. Lastly, we would note that this latest earnings report shows a reported EBITDA margin of 16.4% (+2.7pts) for the wood activity, just 6.9% (+2.1pts) for Plastic and 10.5% for Decoration. As we see it, these gaps are a good illustration of the margin expansion potential across the entire Manufacturing division.

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