Zotefoams PLC

Zotefoams PLC (LON: ZTF) is a manufacturer of cellular materials. It specializes in manufacturing of lightweight cross-linked polyolefin block foams (AZOTE®). Additionally, it markets and licenses other closed-cell foam products such as ZOTEK® and T-FIT® along with microcellular materials technology. Globally, it has a workforce of nearly 450 people.

On 13^th May 2020, Zotefoams will organize its annual general meeting for 2020.

Recent News
On 27^th February 2020, the group unveiled the LZ45 Matt Black (which is the latest grade of AZOTE polyethylene foams). It will improve efficiency and helps in waste reduction.

Preliminary Results for the year ended 31^st December 2019 (GBP Million)
As on 7^th April 2020, Zotefoams group has released its unaudited results for the financial year 2019, wherein the group affirmed that the group revenue is loosely in line with the previous year. The group revenue stood at £80.86m in FY2019 as against £81.04m in FY2018. The group faced a challenging market conditions; however, it was partially offset by growth in High-Performance Products (HPP) and MuCell Extrusion LLC (MEL) business segments. The gross profit margin stood at 35.4 per cent in FY2019 versus 35.8 per cent in FY2018, despite the higher depreciation and operating expenses related to new strategic assets. Eventually, the Profit before tax was overall in line with the last year and stood at £9.81m in FY2019 (FY2018: £9.86m). The group has witnessed a slightly higher EPS by 1 per cent at 17.10 pence in FY2019 (FY2018: 16.96 pence).

 
Share Price Performance
 
Daily Chart as of April9^th, 2020, after the market close (Source: Thomson Reuters)

Zotefoams PLC’s shares were trading at GBX 224.0 after the market close on 9^th April 2020, up by 9.27 per cent against the previous day closing price. Stock's 52 weeks High is GBX 650.00 and Low is GBX 152.00.

Valuation Methodology


Conclusion
The group has performed decently in the financial year 2019 despite the challenging market conditions faced in the second half of the year, particularly in their Polyolefin Foams business. The sales volume in Polyolefin Foams plummeted 10 per cent in the financial year 2019, while the overall sales volume declined by 14 per cent. In the second half of 2019, the group had to face supply chain destocking, which further contributed to demand loss; however, volume loss was somehow offset by the improvements in the product mix and favourable exchange rates. Currently, the contagion of Covid-19 is causing further disruption.

However, the group is anticipating a surge in demand for HPP products segment in the latter half of 2020. Considering the ongoing uncertain market scenario, the group is currently focussing on maintaining liquidity by cutting cost, strict operational management and rational capital management. In the long-term, the group is confident about its position with a diverse customer base and competitive positioning.

Based on the headwinds faced by the group, we have given a "WATCH" recommendation at the closing price of GBX 224.00 (as on 9^th April 2020), while we look for any upcoming catalysts in the near term.
 
*All forecasted figures and peers information has been taken from Thomson Reuters.

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