Orthex announced its plan regarding its initial public offering yesterday, March 4, 2021.
Let’s start a thread to dissect the company!
Orthex Oy (“Orthex”), one of the leading Nordic home utility companies, is planning an initial public offering (“IPO”) and the listing of its shares on Nasdaq Helsinki Oy’s (“Nasdaq Helsinki”) main market.
After the listing, the board will be chaired by Sanna Suvanto-Harsaae, a professional board member and current member of Orthex’s board, who serves on the boards of eight companies and, for example, as chairman of Posti’s board.
“I see that Orthex has a lot of growth potential, especially with the growth of exports and e-commerce,” says Suvanto-Harsaae.
Last year, Orthex had a turnover of 75.9 million euros and an operating profit of 12.3 million euros. The company has approximately 300 employees. Its factories are located in Gnosjö and Tingsryd in Sweden, and Lohja in Finland.
Orthex aims for an average annual organic sales growth of over five percent at the group level and over ten percent growth outside the Nordic countries. The goal is to achieve an EBITA margin of over 18 percent. The company intends to distribute dividends twice a year, totaling at least half of the financial year’s profit.
The numbers are interesting in themselves. But we’ll see. Traditional plastic products are not the future direction of development. A small company that probably doesn’t have its own resources to develop various biodegradable products.
{“content”:“Quite an interesting listing. The company is small, but has good products. When I go through my own plastic containers, almost all of them are Orthex. They also seem to last through use. I might even buy a slice if it’s not expensive.”,“target_locale”:“en”}
Here’s an example of how another plastic container company fared through the Covid crisis in 2020. Its stock multiplied about 10-12 times in one year.
It’s interesting, then, whether Orthex is listing now “after an exceptionally good year”. On Orthex’s listing pages, I only saw a comparison of 2019-2020 figures, so is this “an exceptionally good year” below? Value trap?
Now, this is an interesting listing. It’s a suitably boring company that’s familiar from every home. At least in my mind, plastic containers and other utility plastics make me think of Orthex first – at least if you want better quality and not the cheapest Ikea stuff.
At a quick glance, the published 2020 figures look attractive:
Adjusted operating profit €12.878 million / 17.0%
Anchor investors committed up to a valuation of €121 million, net debt €38.9 million, meaning after the offering, 2020 EV/EBIT is at most around 12.4.
However, I noticed that no net profit figures have been published yet. Also, the 2019 IFRS figures look significantly better than the FAS figures. Is there an expert on the forum who could elaborate on the differences and reasons for these? I’m particularly puzzled as to how a change in accounting standards can shift ROE from clearly negative to clearly positive. There’s a big difference in the operating profit line, and apparently, net profit according to FAS has dropped into negative territory.
| 2019 (thousand EUR) | (IFRS) | (FAS) |
|---|---|---|
| Revenue(1) | 66 427 | 65 703 |
| Adjusted EBITA(3)(6) | 7 593 | 7 040 |
| Adjusted EBITA margin, percent(3)(6) | 11,4 | 10,7 |
| Adjusted operating profit(3)(6) | 7 540 | 3 035 |
| Adjusted operating profit margin, percent(3)(6) | 11,4 | 4,6 |
| Return on equity, percent(3)(13) | 15,3 | -12 |
I would be as little worried about that as I would be about how few resources a clothing factory has for developing wood fiber-based fabric or a foundry for developing more ecological basic steel. Orthex or any other plastic injection molding factory does not manufacture its raw materials; it buys plastic granules from a raw material supplier, from which its own products are then made. If a new (biodegradable or some other hype) plastic raw material comes onto the market, they will surely be utilizing it.
Related to the topic.
Plastic containers made from oil are really a sunset industry, but wood plastic could very well be the future. 
It strongly feels like Orthex has received a lot of tailwind from last year’s trends. At least following the media, I’ve gotten the impression that almost all of the product categories below have benefited from the corona pandemic. Staying at home, cottage life, cooking/baking, berry picking, etc., were, as I understand it, quite popular last year.
If it’s any comfort to Uncle Masse, Jorma Peräs will at least invest a little in this if the valuation is at a reasonable level. When I’ve been buying plastic from the store, products made from recycled plastic have always been chosen over other options, and the manufacturer is usually SmartStore (Orthex). I’m interested in the green megatrend here and how it’s being made green.
A short company presentation from three years ago from Sponsor Capital’s channel:
Orthex’s revenue in 2020 totaled 76 million euros (66 million euros in 2019)
Revenue development 2014-2018 (Source: Orthex Sustainability report 2018)
Orthex Sustainabilty Report 2018.pdf (2.4 MB)
Previous development:
Sveico AB: (Intera Partners - Etusivu)
Hammarplast Consumer AB: (Intera Partners - Etusivu)
Intera divested its ownership in 2015. Orthex came under the ownership of Sponsor Capital and Orthex’s operative management. (Intera Partners - Etusivu)
A typical boring product repertoire that can be found in almost everyone’s cupboard. Bio-based cup projects, at least one with Stora Enso and another with Woody. This could be considered.
Continued from Orthex - Muovia maailmalle:
Somehow, I’d be interested in joining.
They’ve invested quite a lot in their own material storages (silos & conveyors, etc.) over the years. I see them as having a good ability to adapt to future materials.
We’ll see where the share price settles.
When is this listing relevant?
Yeah, this could be a pretty viable stock. The product range is such that these are always needed. Risks that come to mind are mainly overextension and betting on the wrong technologies, but being small naturally forces caution here. Competitors are big, there are Chinese imports, Ikea, and big private labels, which Orthex probably makes for someone too – does anyone have more information on this?
I’ll take a small position to monitor once it becomes relevant.
I’ve already come across this 
a couple of times with Orthex. It’s perhaps a bit of a dangerous basis for investing in anything.
Nickel and zinc will always be needed too, but Talvivaara still went under. 
{“content”:“No matter how interesting this is, if the valuation is realistic, the same thing will happen as with all other good IPO listings: It will be oversubscribed, everyone’s money will be tied up (=lost opportunity cost), and the IPO will result in a few hundred euros worth of shares.”,“target_locale”:“en”}
Strong key figures and a suitably boring industry. I’m definitely going to subscribe.
The valuation seems reasonable.
Where did you watch it? I haven’t seen it myself.
The post-IPO market cap, as defined by anchor investors, is 121 million euros. The company aims to raise gross proceeds of 10 million euros through the offering. Based on a market cap of 121 million euros, the EV/EBIT is 11.6 and the EV/EBITDA is 8.8.
The plastic business is highly competitive and characterized by low margins. A major risk is fluctuations in material prices (oil). Their products are indeed high-quality, but I don’t see a significant competitive advantage against other European products, which are their toughest competitors.
Growth is moderately modest, as is operating profit, leaving one to ponder future growth and dividends from an investment perspective. Historically, these have been very modest, suggesting weak stock growth, and where would those dividends even come from? Pörssi- ja yritystietojen julkaisu Taloussanomissa päättyy 31.5.2023 - Ilta-Sanomat
If the company had a new strategy or vision for growth and profitability, it might be more interesting. However, it’s unlikely many shares would be available from the offering; for example, Kreate was oversubscribed, so the risk is also moderate.
I’m not an expert, just my own thoughts…
