Q1 figures broadly in line with expectations. Like its peers, Q2 is expected to be worse when taking into account that lockdowns are in many markets. The signs of recovery in China are, however, encouraging. No major changes expected in our estimates. While we don’t expect a quick return to normal, we certainly see no real downside potential as long as debt markets are supported by central banks.
Companies: AB INBEV
A poor Q4, which strongly missed expectations on EBITDA (-5.5% vs. -1.9% expected). While FY20 guidance (2-5% EBITDA growth) appears soft, we believe that it is actually more reasonable following the H2 FY19 troubles which are likely to be exacerbated by the Coronavirus in the first half. Now trading at a discount to peers, we are just waiting for some visible improvements.
Weak Q3 numbers and downgraded guidance for FY EBITDA growth. At both the top- and bottom-line, the group disappointed. The slowdown in the main markets, higher cost of sales and yoy phasing of sales and marketing investments all negatively weighed on the results.
The market applauded ABI’s Australian divestment ($11.3bn), and rightly so. AB Inbev reacted quickly after it failed to IPO its Asian unit as a way to contract its immense debt ($106bn). It may well be that this shift (i.e. keeping Asia) means potential investments in emerging markets to offset the lacklustre US.
Strong Q4 on the back of a rebound in Brazil as well as better performances in China and Colombia. The US remains soft, although improved vs. Q3. As positives, we note a better than expected margin progression.
The improvment from quarter to quarter and positive FY18 outlook should be reassuring for shareholders.
Q2 update: revenue grew +5% organically (cons. +3.8%), volumes were up 1% (cons. +0.1%) whereas revenue per hl stood at +3.2%. The EBITDA margin was up 238 bp on an organic basis and -110bp on reported figures.
Organic revenue growth by region: North America 0% (cons. -0.9%), LatAm West +8.5% (cons. +6.4%), LatAm North -1.8% (cons. +0.7%), LatAm South 35.4% (cons. +27%), EMEA +10% (cons. +6.3%) and Asia Pacific +5.9% (cons. +5%).
By the most important markets, the US saw a better quarter with revenues down only 0.2% but the company has been losing market share. In Brazil, revenue declined 3.8% in Q2, with beer volumes down 1.3% (an improvement vs Q1) against market volumes of -2.7%. The margin stood at 39.2% (better than in Q1). Mexico continues to perform ok with revenue up low double-digit. South Africa delivered very good +8.8% sales growth in Q2 with a strong margin progression. Colombia had a better quarter vs. Q1 with revenues up +3.4% and volumes down 1.4%. China had quite a good quarter with revenue up +7.2% with +1% growth in volumes and an EBITDA margin expansion to 35.7%.
The group expects to accelerate revenue growth in FY17.
Q1 update: revenue grew by +3.7% organically (cons. +2.8%), volumes were down -0.5% (cons. -0.6%), and revenue per hl stood at +4.3%. On the reported figures, revenue was up by 7%. The EBITDA margin was up by 76bps on an organic basis and flat on the reported figures.
Organic revenue growth by region: NorAm -2.1% (cons. -0.1%), LatAm West +3% (cons. +4.5%), LatAm North +2% (cons. +0.4%), LatAm South +27.4% (cons. +16%), EMEA + 4.9% (cons. +4%) and Asia Pacific +8% (cons. +3.5%).
By the most important markets, Brazil remains weak (although volumes were up by 3.4%, the EBITDA margin contracted to 38.8%). US volumes were disappointing (down 4.7%) impacted by BudLight, and the EBITDA margin slightly improved. Mexico seemed to be solid (revenue up high-single-digit) with margin expansion. China had a good start to the quarter with positive volumes (+5%) and better revenue per hl (+6%). South Africa seems to running well with stronger pricing and margin expansion on the back of the implementation of Global Brands. In Colombia, volumes were down by almost 8% and the margin contacted due to a VAT increase.
The group expects to accelerate revenue growth in FY17 despite the volatile market environment.
FY and Q4 update: In Q4, revenue grew +0.2% organically (cons. +3.1%), volumes were down 3.3% (cons. -0.8%), and revenue per hl stood at +3.9%. The EBITDA margin was down 152bp on an organic basis and -300bp on reported figures (FX headwinds) to 37%.
By the most important markets, Brazil remained weak (EBITDA in Q4 was down c.33%), although pricing improved. US volumes were down in line with Q3, however, margins improved. Mexico seems to be solid. China had a weaker quarter on strong comparables but the overall performance seems to be good (market share gains with stronger pricing). Volumes in South Africa declined by 5% in Q4 and the EBITDA contracted. In Colombia, volumes were also down with a margin contraction.
For the FY revenue grew +2.4% organically, and volumes were down 2%. Revenue per hl was up +4.5%. On reported figures, sales contracted by 3%. The EBITA margin contracted by 92bp organically on the back of a weak Brazil (EBITDA declined by c.20% in FY16) and was down 190bp on reported figures to 36.8%.
The net profit for period is down 42% on the back of FX headwinds as well as higher net finance costs (linked to the acquisition of SABM). The proposed total dividend is €3.6 (in line with last year’s).
FY17 outlook: the group expects top-line growth to accelerate. The company also updated its synergies guidance: ABI expects a total $2.8bn in synergies at constant FX from the SABM acquisition ($2.45bn previously),of which $800m was captured in 2016 and another $2.0bn will be delivered in the next 3-4 years.
ABI Q3 update: On an organic basis, revenue grew +2.8% (cons. +3.4%). Volumes were down 0.9% (cons. -1.5%). Revenue per hl stood at 3.8%. On the reported figures, revenue is down 2.3%. The EBITDA margin contracted by 240bp on a reported basis and by 178bp on organic basis (due to Brazil).
Organic sales by region: North America -0.3% (cons. +0.7%), Mexico +12% (cons. +8.1%), LatAm North -5% (cons. +3.1%), LatAm South 22.2% (cons. 12.2%), Europe +3.1% (cons. +3%) and Asia 5% (cons. 4.9%).
Volumes by region: North America -2.4% (cons. -0.8%), Mexico +9.6% (cons. +5%), LatAm North -4.5% (cons. -4%), LatAm South -1.7% (cons. -7%), Europe -3.2% (cons. +0.3%) and Asia 1.2% (cons. +0%).
By most important market, the US performance in Q3 was weak (both STRs and STWs were down by respectively –2.6% and -2.5%, ABI continued also to lose some market share to STRs). Brazil was very weak (volumes down 5.1%, pricing was negative, and there was a huge EBITDA margin deterioration from 50.2% to 37.8%). Mexico seems robust. China delivered good results (volumes +1.6% and 417bp EBITDA margin progression).
The group cut its FY guidance for pricing to now be in line with inflation (vs. ahead of inflation) due to a weak Brazil. ABI had expected Brazil to be flat in revenue for the FY, which is no longer the case. The company expects that unfavourable hedges linked to the devaluation of the Brazilian real will impact COGS before easing by mid-FY17.
Q2 update. On an organic basis, revenue grew +4% (cons +5.8%). Volumes were down -1.7% (cons +1%). Revenue per hl stood at 5.9%. On the reported figures, revenue is down -2.2%. The EBITDA margin contracted by 50 bps (due to LatAm).
Organic sales by region: North America +2.2% (cons. +1%), Mexico +9.5% (cons. +11%), LatAm North +1.7% (cons. +9.2%), LatAm South 4.1% (cons. +15%), Europe +4.6% (cons. +4%) and Asia 4.1% (cons. +5%).
Volumes by region: North America +0.4% (cons. -0.7%), Mexico +7.2% (cons. +8%), LatAm North -4.6% (cons. +1.3%), LatAm South -14.8% (cons. -5%), Europe -0.8% (cons. +1.2%) and Asia –1.7% (cons. +1.2%).
Taking the most important markets, the US delivered good results which were an improvement on the Q1 (volumes were practically flat -0.3% with flat STRs and STWs down -0.9%, whereas the EBITDA margin was up +92bp). Mexico recorded another quarter of strong growth (volumes +9.9%, the margin was negatively impacted by the timing of sales and marketing investments). Brazil’s performance was weak and reflects the challenging macro environment (volumes -4.7%, organic EBITDA margin was down 217bp). China’s performance was good given the weak industrial environment (volumes -1.8% vs. market -8%, organic EBITDA margin was up +553bp on the back of premium portfolio).
The company amended its FY guidance and now expects Brazilian net revenue to be flat for the FY (mid to high-single-digit previously).
ABI reported its Q1. Volumes were down 1.7% (cons. -0.3%). Organic revenue was up 3.1% (cons. 6.1%). Revenue per hl stood at 4.9%. On reported figures, revenues were down 10% whereas the normalised EBITDA margin contracted by 120bp.
Organic volumes by region: Northe America -1.1% (cons. 0.1%), Mexico +13% (cons. +8%), LatAm North -7.3% (cons. -3.5%), LatAm South -5.3% (cons. -2%), Europe +1.8% (cons. +0.5%) and Asia -0.5% (cons. 0%).
Taking the most important markets, the US delivered good results (volumes down 1.2% with STRs -0.3% and STWs down -1.2%, whereas the EBITDA margin was up +82bp). Mexico delivered another quarter of solid growth (volumes +13%, however the margin was negatively impacted by the timing of sales and marketing investments). Brazil’s performance reflects the challenging macro environment (volumes -8.5%, organic EBITDA margin was down 96bp). China’s performance was neutral (volumes -1.1% vs. market -4%, organic EBITDA margin up +76bp).
The group expects the challenging environment to continue but initiatives which have been put in place should mitigate the impact. Consequently, ABI remains cautiously optimistic about the rest of the year and maintains its guidance.
ABI released its Q4 and FY results. In Q4, total volumes declined 0.7% (cons 0%) whereas revenue grew organically +7% (cons +6.5%). The normalised EBITDA grew +6.6% (cons 6.5%). Revenue per hl grew 7.7%. On reported figures, sales stood at $10.7bn (cons $11.1bn) and normalised EBITDA was at $4.3bn (cons $4.58bn).
Q4 organic volumes by region: NorAm -2.9% (cons. -1%), Mexico +11.3% (cons. +5%), LatAm North -2.6% (cons. +1.1%), LatAm South -3.7% (cons. +0.9%), Europe + 2.9% (cons. -3%) and Asia Pacific -0.2 (cons -1%).
Q4 organic revenue by region: NorAm -0.6% (cons. 0.2%), Mexico +13.9% (cons. +8%), LatAm North +7.1% (cons +9%), LatAm South -+24.1% (cons. +28.5%), Europe + 8.9% (cons. +3%) and Asia Pacific 11% (cons +4.8%).
Taking the most important markets, in Q4, the *US* volumes were down 3.3% (STWs were down 3.3% STRs were down 1.1%) whereas the organic EBITDA margin contracted 246bp (poor quarter). *Mexico* recorded another strong quarter with volumes up +11.3% and a 352bp organic EBITDA margin improvement. In *Brazil*, volumes stood at -3.5% whereas the EBITDA margin was up 34bp (a good performance in a difficult economic context). *China* remained fragile with volumes practically flat (-0.2% vs. -6% for the whole industry, good performance overall).
On a FY basis, total volumes were down 0.6%, organic revenue was up +6.3% (-7% on reported figures). The normalised EBITDA margin was up 55bp organically and down 80bp on a reported basis.
Proposed interim dividend is €2.00 (€3.60 for the FY vs. €3.00 last year).
ABI released its Q3 update. Revenue grew +7.9% organically (consensus +6.7%) whereas organic volumes were up +1.5% (cons. +0.9%). Revenue per hl grew 6.3%. On reported figures revenue was down by 7.1% due to an adverse FX effect. Total normalised EBITDA margin progressed by 58bp organically and was 10bp down on a reported basis.
ABI reported its Q2 numbers. Sales stood at €11.05bn (consensus at €11.6bn), down by -11.6% yoy (FX at -11.6%). On a constant basis, the revenue grew by 4.1% (cons. at 5.6%).
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A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
Companies: AGY ARBB ARIX BUR CMH CLIG DNL HAYD NSF PCA PIN PXC PHP RE/ RECI SCE SHED VTA
Distil delivered a solid trading performance in FY20, despite uncertainties caused by the impact of external events in the form of Brexit initially and COVID-19 more recently. With its disciplined cost approach, Distil saw a 15% increase in operating profit from a 2% rise in revenue. Range extensions have underpinned the continuing success of its leading RedLeg Spiced Rum brand and Distil has continued to lay the groundwork for the further development and future expansion of its brand portfolio.
Continuing its exceptionally strong year, Venture Life has announced it expects to ‘comfortably exceed market expectations' for FY20E. This outperformance stems from all areas of the business, supported by an enlarged order book, €168m multi-year Chinese agreement (+€7m in 2020) and demand for its new branded hand sanitising gel. Venture Life has announced an extension to its Alliance Pharma manufacturing agreement. On top of our March upgrade, we are today, significantly increasing our revenue and EBITDA forecasts for FY20E (+19% and +24%, respectively). We reiterate our Buy recommendation.
Companies: Venture Life Group
Premier Foods’ FY20 results demonstrate the substantial progress the company has made over the past few years. The UK business has now grown for 11 consecutive quarters and Q121 is set to be very strong. In the UK the brands grew ahead of their categories and the innovation rate has hit a new high. A new landmark pensions agreement was signed in April, which could potentially significantly reduce the future funding requirements for Premier Foods. The recent triennial actuarial valuation delivers further credence to the pensions deal.
Companies: Premier Foods
We are introducing our Best Ideas for 2019 and also review the performance of last year’s picks. We suggest ten solidly financed stocks with good business dynamics that ought to be considered for core portfolio holdings and six UK domestically focused stocks that our analysts believe should perform strongly in the event that uncertainties unwind. We also introduce a new style of research from N+1 Singer which presents a Company’s dynamics and metrics in a clear and concise manner and concentrates on the pivotal issues affecting that Company and an investment decision.
Companies: BCA CLIN CLG CBP DNLM EAH STU FCRM FUTR GTLY INS GLE NICL SDL SPR TRI
Warren Buffett once said that as an investor, it is wise to be ‘fearful when others are greedy and greedy when others are fearful’. Fear is not in short supply right now.
Companies: OPM ALU ANCR BLV CONN CRC STU GATC HAT LEK MMH MCB MWE NXR NTBR NOG PAF PEG RFX SRC TEF TEG TPT VTU WYN XLM
Nichols full year results show another year of good top-line execution and PBT delivery in line with market expectations. We make no meaningful forecast changes. The company enters 2020 with good self-help momentum and various NPD initiatives. There is no new news around the Middle East excise duty headwind. More clarity will emerge by the July interims. The recent FY20 profit reset should be seen in the context of an otherwise exemplary record on execution and delivery. A combination of high brand equity, significant top-line potential, geographical diversification, track record of innovation and a cash generative profile with balance sheet optionality warrants a premium rating.
Nichols has issued a Covid-19 update this morning, signalling the need to protect the balance sheet during the current uncertainty to help ensure it emerges in a strong position to deliver mid-term growth objectives. Briefly, whilst trading in the first two months of FY20 was in line with management’s expectations, Covid-19 is expected to have an adverse impact in the months ahead. This reflects both the OOH division being directly exposed to the UK lockdown of pubs/restaurants/cinemas but also recognising the potential risk to retail sales from any protracted restriction of movement of people worldwide. Given this backdrop, management now expect a significant financial impact in FY20. In line with some of its peers, the company is temporarily removing financial guidance and we withdraw our forecasts. Given the uncertain outlook, the Board has taken the prudent decision to cancel the final dividend announced in the Feb finals of 28p per share, conserving a significant £10.4m of cash. Notably, the update signals that the Board will consider reinstating the dividend payment once there is a better handle on the cash position post the critical spring/summer period. In addition to this there are various other cost action plans to protect the P&L and cashflow. Whilst today’s update is not a huge surprise given the Covid-19 backdrop, it does not fundamentally change the positive investment thesis - as evidenced by 10% PBT CAGR in the last decade (virtually all organic). Nichols has an asset light business model, an excellent and proven management team and a robust balance sheet (£41m netcash at Dec’19) to ensure it effectively manages near term pressures and prospers over the medium term.
Venture Life Group has announced the signing of a new, exclusive 15-year agreement with its Chinese partner on key products, including Dentyl. Significantly, the minimum purchase obligations over the 15-year period amount to €168m. This equates to, on average, £10m of revenues and potentially £4m of EBITDA, per year, to 2034, which we estimate has a present value of ~£21m or 25p per share. Further, we believe the agreement significantly improves the Group's long-term financial position. The deal clearly validates Venture Life's Chinese strategy and its partner's commitment to the long-term development of these key products. We reiterate our Buy recommendation.
Premier Foods’ H119 results demonstrate the business has become more resilient under the stewardship of outgoing CEO, Gavin Darby. Revenue growth of 1.0% in Q2 despite the hot summer was encouraging, and the UK relaunch of the Mr Kipling brand has clearly gone well. The news that Ambrosia may be sold suggests yet another step in the business transformation, although the price will determine the level of dilution and any change to net debt/EBITDA.
A brief year-end trading update with not a huge amount of details. The main point is that post the July 2019 profit warning, the PBT performance through a combination of mix and cost savings has come in towards top-end of market expectations, implying c18% y/y decline. So a c3% beat vs our £36.5m. Revenue decline at -9% however was worse than our -7%. This reflects ongoing challenges with the Rubicon and Rockstar barns and lower Irn-Bru volume due to price realignment. Net, the company had a better H2 than H1 and from our understanding, exits Q4 with good momentum. Looking ahead to 2020, the comps are easier and the company is expected to get back into growth mode (albeit 3% at the PBT level). The main cloud on the horizon is the Deposit Return Scheme for Scotland, and we understand the Scottish Parliament will provide an update on plans in the next few weeks. We view this as short-term negative for AG Barr and hence have a y/y profit decline for FY22. Post today’s update we nudge our current year PBT up by 2% and FY21 by 2% also. There will be some investor relief this morning but given the anaemic growth outlook and ongoing headwinds we feel an FY21 P/E looks full. We stay at Hold.
Companies: A.G. Barr
Cranswick’s FY20 results demonstrate its strength and agility and current trading confirms the company is well positioned despite the uncertainty posed by the COVID-19 pandemic and Brexit. Revenues were up 13.0% on a like-for-like basis, mainly driven by better price/mix, but with underlying volumes up 3.4%. Adjusted PBT was up 11.2% on the prior year and EPS up 8.4%. Net debt was £146.9m at year end, including IFRS 16 liabilities of £65.9m. The start to FY21 has been positive and hence the outlook remains unchanged.
Salmon prices held up much better than feared during Q2/20, and although Norwegian prices came in NOK 4/kg above our previous assumptions, US prices disappointed. Mowi is set to release its trading update around 15 July, and we now expect an operational EBIT of EUR 80m (83) vs consensus at EUR 75m. Seasonality adds short-term risk, and we stick to our Hold rating as well as our NOK 185 target price in this preview.
Companies: Mowi ASA