Research Dynamics - Report on CPHN: Investor Day Update

Packaging division to participate in the mega-trend of the pharmaceutical industry

CPH Group (CPH) hosted its annual Investor’s Day. The company outlined its strategic and financial objectives with a focus on innovation and product development, growth in attractive niche markets and operational excellence in both the Chemistry and Packaging divisions. Following the spin-off of the paper business, the management is now fully focused on the Chemicals and Packaging segments, both of which have significant potential for further growth. With its strong brands Zeochem (chemistry) and Perlen Packaging (packaging), the CPH Group is already very well positioned and can now focus even more on these brands in order to take full advantage of the above-average growth opportunities in niche markets worldwide.

A special focus of the Investor’s Day was the Packaging Division. Management outlined Perlen Packaging's strategy and presented the pharmaceutical packaging market, where the division holds a leading global position. They also provided information on the new plant in Brazil, which is now the most modern coating plant in Latin America and enables the company to supply local markets. Brazil, currently the fastest growing pharmaceutical market, offers further growth potential.

Packaging division: Set for secular long-term growth

The division remains entirely focused on the pharmaceutical sector, with production sites in the top 10 pharmaceutical markets, including the US, China, Germany, and Brazil. It aims to further increase its international presence through expansion at various sites. The division has a strong market position and is among the top three players in the niche market for pharmaceutical packaging. Perlen Packaging is primarily active in the highly regulated Rx and OTC markets, where tablets and capsules remain highly attractive dosage forms. The company generates more than 90% of its business from repeat orders, which provide revenue visibility.

The division is developing new products, such as halogen-free films and mono-material packaging, to support the circular economy. In particular, the global market for pharmaceutical blister packaging is expected to grow by 3% to 6% annually over the next few years, creating a favourable environment for the division's growth. Key megatrends such as ageing and population growth, autonomy and self-determination, lifestyle diseases and improved healthcare will support long-term growth opportunities for the division.

Solid track record

The segment has achieved impressive volume growth across its various product offerings. This has resulted in annual growth of more than 8% over the last 10 years and attractive EBITDA margins. Given the solid outlook for the pharmaceutical market, the division is expected to continue to deliver healthy volume growth and profitability.

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 to 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 86.1 per share implies an upside of 31.7% 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 4.8x (FY2024e), a 45.0% discount to the weighted average multiple of division peers.