Strong finish expected; Up to “Hold”
In the third financial quarter (June till August) Gerresheimer lost some of its momentum. Sales decreased by 2.6% yoy to EUR 349.2m, slightly below market expectations (Consensus: EUR 352.6m). Business development was further impacted by a weaker cosmetic business due to the pandemic, a change in the advanced technologies business unit and currency effects. After a dynamic Q2, organic growth in the core business, which comprises the Plastics & Devices and Primary Packaging Glass segments, halved to +2.1%. For the adj. EBITDA the company reported an increase of 3.8% to EUR 75.0m (consensus: EUR 74.1m). This represented a margin increase of 1.4 ppt to 21.5%. In relation to the core business Gerresheimer reported organic adj. EBITDA growth of 8.6%. Adjusted for special items, net earnings of EUR 30.7m were marginally higher than in the prior year. Adjusted earnings per share improved accordingly slightly to EUR 0.97 (prior year: EUR 0.96, consensus: EUR 0.95).
In the Plastics & Devices (P&D) division, sales stagnated at the previous year´s level of EUR 192.8m. Organic growth was reported at 4.3%. The positive development was mainly driven by primary plastic packaging and medical devices as well as the syringe business. In contrast to the previous year, Primary Packaging Glass (PPG) sales were down EUR 155.8m, -2.1% (organic: +0.4%). A pandemic-related weakness in demand in the cosmetic business continued to weigh on sales. The company estimated the associated losses at EUR 6m. In addition, an interruption of operations due to a tub damage caused a loss of sales. These were already compensated in Q2 by insurance compensation. The decline in revenues from EUR 6.3m to EUR 0.6m in the Advanced Technologies (AT) segment was due to the switch to a revenue-sharing model. In cooperation with pharmaceutical companies, Gerresheimer develops intelligent delivery systems for use in various therapeutic areas (Parkinson's disease, diabetes, immunoncology).
The outlook for 2020 was reaffirmed. Group revenue is still expected to grow in the mid single-digit percentage range (eAR +3,5% yoy). The planned increase in operating profit (adjusted EBITDA) is in the low single-digit percentage range. The margin expectation remains unchanged in the 21% range compared to 2019.
Gerresheimer remained organically on course for growth in Q3, but at a slower pace. The Group indicated additional growth potential in the medium term with prefillable syringes (RTF, ready to fill) and ampoules, which are candidates for use in Covid-19 vaccines, among others. Irrespective of a potential vaccine, the company expects an increase in vaccination activity and is expanding capacity in this area accordingly.
Conclusion: A weaker cosmetics business due to the pandemic was the main negative factor. At earnings level the company achieved a robust margin development. Achieving the annual targets requires an outstanding Q4. Management expressed confidence that deliveries of new products will make a corresponding contribution to sales and earnings. We are leaving our price target at EUR 85.00. On the basis of the current price, we upgrade our recommendation to "Hold" (previously: "Sell").