We have decided to lower our earnings forecasts following the recent release of the 1Q trading update.
We remind that Recticel’s 1Q13 revenue declined by 9.5% to € 317.9m, which was well below our forecast of € 332.5m (-5% y/y). The divisional performance was as follows:
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Flexible Foams: -3.8% to € 151.5m (KBCS -3% to € 152.7m)
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Bedding: +2.5% to € 75.5m (KBCS -3% to € 71.4m). Note that there was an internal transfer of some activities from Flex Foams to Bedding, and excluding this effect Bedding sales decreased by 5.9%, with a decline in both Branded and Private Label segments
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Insulation: -5.8% to € 49.9m (KBCS -7% to € 49.3m)
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Automotive: -23.0% to € 63.5m (KBCS-10% to € 74.2m). The decline mostly stems from the Interiors segment (-32.2%), which was faced with some contract run offs.
Recticel did not disclose precise quarterly profit numbers, but commented that profitability was down in 1Q13.
We have decided to lower our forecasts following the trading update. We have lowered our FY13 revenue forecast from € 1.32bn to € 1.27bn. We also expect that the lower top line will weigh on profit margins, and we have reduced our FY13 REBITDA forecast from € 92.0m to € 79.1m (vs the € 90.7m posted in 2012 but which included a reversal of pension provisions of about € 7m.). All in all, the changes lead to a reduction of our 2013 EPS forecasts from € 0.81 to € 0.58. Out of prudency, we have also lowered our FY14 forecasts (EPS lowered from € 0.95 to € 0.78).
Our View:
The weak start of the year on the top line level raises some concerns on the margin evolution, given the importance of operating leverage. We decided to lower our forecasts somewhat, but still believe that valuation is attractive, despite the risk of an EC fine. We stick to our Accumulate rating and € 7.5 target price.