Ontex proves its mettle amid Covid-19

Covid 19

Even casual investors will know that crises like the current coronavirus pandemic with its shocks to the stock market are both a risk and an opportunity.

Global lockdowns and subsequent slumps in trade volumes are taking a bite out of Europe’s economy, pushing it into a severe recession, with firms in the entertainment, services, and manufacturing sector bearing the brunt of the demand shocks.

While these companies are better left alone, obvious exceptions are companies involved – in some way or form – in the fight against the coronavirus. Cleaning and hygiene producers are the obvious winners here, and as personal hygiene products manufacturer Ontex shows, a safe bet. The Belgium-based company’s freshly released Q1 financial results show a solid growth in revenues, driven by increased sales since March. Reported revenues went up by 6.8% LFL across its three main product categories to €574 million.

These numbers demonstrate confidence in the face of a turbulent and more often than not unpredictable environment. Ontex management recognized the signs early on and moved to ensure that its 18 production facilities remain open and continue operations as the virus spread, prioritizing the health and safety of its employees and partners across the supply chain.

“Ontex has taken rapid and decisive actions to safeguard the health of our employees and contribute to the communities in which we operate in the face of COVID-19 pandemic,” says Ontex CEO Charles Bouaziz. “Outstanding execution by our teams and proactive management of the supply chain allowed Ontex to ensure a steady supply of essential goods to meet a surge in customer demand in response to lockdown measures in March in our main markets.”

Apart from ensuring the safety of personnel throughout the pandemic, another element of early crisis adaption involved maintaining adequate liquidity and funding of operations, for which Ontex implemented strict operating expense monitoring and shifted focus of capital expenditure to essential projects. Ontex has thus remained financially on firm ground, with strong liquidity and no maturities in the near-turn.

Taking all these aspects into account, it looks like Ontex can look with confidence to Q2 overall, but some potential snags could cloud the outlook. Although Q1 results speak to effective crisis management, activist investment fund ENA Investment Capital – after surreptitiously acquiring 14.99% of Ontex voting shares in April – is putting pressure on the Board of Directors to create more value for shareholders as fast as possible as well as replace CEO Bouaziz.

Interestingly enough, however, unlike other activist funds, ENA has not released the customary white paper that accompanies moves to shake up the board. The fund seems to take a backwards-looking appraisal of Ontex’s financial performance, blasting past results while keeping mum on the company’s outlook.

In any event, demand is expected to return to pre-crisis levels at some point in Q2, as the Covid-19 pandemic is passing its peak across Europe and many governments move towards easing lockdown rules and restarting economic activity. How Ontex and other market players readjust to this remains to be seen, especially since the possibility of a second coronavirus wave in the coming months cannot be discounted.

If the current handling of the situation is a yardstick for future shocks, Ontex has rightfully earned investor confidence, even beyond the current coronavirus crisis.