Schweitzer-Mauduit International, Inc.

SWM Details

Schweitzer-Mauduit International, Inc. (NYSE: SWM) is a diversified producer of engineered solutions and materials for various industries. Its operating segments are 1) Advanced Materials & Structures (AMS), which manufactures resin-based rolled goods such as nets, films and meltblown materials, bonding products and adhesive components and others, serving filtration, transportation, healthcare, construction, and industrial end-markets, and 2) Engineered Paper (EP), which produces various cigarette paper and reconstituted tobacco products (Recon) for the tobacco industry. SWM has manufacturing facilities in 39 locations globally and operates in over 90 countries. In Q2FY21, the US accounted for 50.95% of SWM's net sales. As of August 24, 2021, the company's market capitalization stood at USD 1.18 billion.

Inorganic Growth Initiatives: On April 15, 2021, SWM acquired Scapa Group, Plc, a UK-based manufacturing solutions provider for healthcare and industrial markets, for a total equity value of ~EUR 412.60 million. The acquisition augments SWM's extensive portfolio and significantly expands its design and formulation capabilities with a potential to reach USD 1.5 billion in annual sales.

Q2FY21 Results: The company reported YoY growth of 48.62% in the net sales to USD 377.8 million in Q2FY21 (ended June 30, 2021) compared to USD 254.2 million in Q2FY20. Revenues from the Advanced Materials and Structures segment, which accounted for 66.70% of the net sales in Q2FY21, expanded 89.76% YoY, driven by organic sales growth of 18% arising from the acquisition of Scapa Group. Net income fell to USD 1.8 million in Q2FY21 vs. USD 21.5 million in Q2FY20. As of June 30, 2021, the company had cash and cash equivalents of USD 65.90 million and total debt of USD 1.28 billion.

Key Risks: In FY20, SWM's top four largest customers accounted for over 28% of its net sales. Hence, the loss of any of these key customers could hurt its financials in the long run. In addition, Reconstituted Tobacco Leaf (RTL) sales accounted for a significant portion of SWM's net sales in FY20. It produces RTL at a single manufacturing facility in France and wrapper and binder products at only one facility in Ancram, New York. Therefore, any disruption in the production process could adversely impact its operations.

Outlook: SWM reported a Free Cash Flow (FCF) of USD 2.2 million in H1FY21. It expects to achieve significantly higher FCF in the remainder of FY21. In H2FY21, demand momentum is expected to continue, allowing for higher product pricing to alleviate inflationary pressures.

Valuation Methodology: EV / EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

SWM Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: SWM's stock price decreased 13.51% and 18.96% in the past three and six months, respectively, and is currently trading in the middle band of its 52-week range of USD 26.73 to USD 50.79. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 43.01. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 44.65. Considering the correction in the stock price, strong topline performance, strategic acquisitions, stable dividend yield and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 37.39, down 0.27% as of August 24, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Farmers & Merchants Bancorp, Inc.

FMAO Details

Farmers & Merchants Bancorp, Inc. (NASDAQ: FMAO) is a holding company of The Farmers & Merchants State Bank, which provides commercial banking, retail banking, and other financial services to individuals and small businesses. FMAO operates 28 offices across northwest Ohio and northeast Indiana, a drive-up facility in Archbold, Ohio, and three loan production offices (LPOs). As of August 24, 2021, the company's market capitalization stood at USD 252.43 million.

Notes Offering: On August 02, 2021, FMAO priced a private offering of USD 35 million aggregate principal amount of 3.25% fixed-to-floating rate subordinated notes due 2031 at par. These notes qualify as Tier 2 Capital for regulatory purposes. The proceeds of the offering will be used for general corporate purposes, funding acquisitions, and achieving organic growth.

Q2FY21 Results: The company reported YoY growth of 1.49% in net interest income to USD 17.53 million in Q2FY21 (ended June 30, 2021) compared to USD 17.27 million in Q2FY20. Net income for Q2FY21 increased to USD 4.98 million vs. USD 4.80 million in Q2FY20. Net Interest Margin (NIM) decreased 38 bps YoY to 3.21% in Q2FY21. In Q2FY21, FMAO's total deposits improved by 16.16% to USD 1.85 billion from USD 1.60 billion in FY20. Non-Performing Loans (NPLs) declined 13.61% to USD 7.03 million in Q2FY21 compared to USD 8.14 million in Q1FY21.

Key Risks: As of June 30, 2021, commercial, consumer and agriculture real estate loans accounted for 73.52% of the total loan portfolio, concentrated around FMAO's primary markets in northwest Ohio and northeast Indiana. As a result, any downturn in the real estate value in these key market areas or any unfavorable change in the economic environment could impair the company's financials.

Valuation Methodology: Price/Book Value Multiple Based Relative Valuation

 (Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

FMAO Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: FMAO's stock price decreased 2.72% and 4.86% in the past six and nine months and is currently leaning towards the lower end of its 52-week range of USD 19.50 to USD 27.58. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is 54.00. We have valued the stock using the Price/Book Value-based relative valuation methodology and arrived at a target price of USD 26.51. Considering the growth in deposits, dividend yield, decline in NPLs, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 22.50, down 0.27% as of August 24, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.