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Adjusted Q3/20 EBIT of NOK 1,571m, 5% above Factset consensus Grocery sales benefitted from consumers staying at home “Out of home” demand recovered as Covid-19 restrictions were eased Strong Jotun results continue to be driven by decorative paints (Lady)
Companies: Orkla ASA
Arctic Securities
We expect Orkla to report Q3/20 adjusted EBIT of NOK 1,478m, 2% below latest Factset consensus of NOK 1,502m. Driven by 5% NOK weakening Y/Y, we expect overall sales growth of 6%. While we expect Orkla Foods and Orkla Care to report strong results, we expect Orkla Food Ingredients to suffer from reduced demand from hotels and canteens. We increase our estimated EBITDA by 5% for 2021 and 2022, to reflect a weaker NOK and a slower Covid-19 recovery.
Adjusted Q2/20 EBIT of 1,143m vs. Factset consensus of NOK 1,111m Q2/20 revenues of NOK 11,099m, up 5% Y/Y, in line with consensus Hydro Power reported negative EBIT for the first time Profit from associates and joint ventures (Jotun) holding up well
We expect Orkla to report Q2/20 adjusted EBIT of NOK 1,097m, 2% below latest Factset consensus of NOK 1,118m. With consumers staying at home, we expect Orkla Foods and Orkla Care to report another strong quarter. On the negative side, we expect Orkla Food Ingredients and restaurants to suffer from reduced “out of home” demand. We reiterate our Hold recommendation with a target price of NOK 85 per share, as we view current risk/reward as fair.
Since the end of April the Orkla share has underperformed the OSEBX by 25%, as appetite for risk assets has recovered. As interest rates are setting record lows, we argue that valuation multiples are starting to look attractive. We upgrade our recommendation from Sell to Hold, and increase our SOTP based target price from NOK 80 to NOK 85 per share. We argue that downside risk related to food ingredients, restaurants and Jotun is now largely priced in.
Orkla reported Q1/20 adjusted EBIT of NOK 1,143m, in line with Infront consensus of NOK 1,150m. This was not enough to prevent the share from slipping 6% on a cautious outlook for Q2/20. While Orkla Foods and Orkla Care benefitted from stockpiling in March, Orkla Food Ingredients and restaurants suffered from government restrictions. While demand for foods and household products have normalised in April, “out-of-home” activity was down significantly Y/Y.
Strong sales growth of 13% Y/Y already known to the market Adjusted EBIT of NOK 1,143m in line with consensus expectations Orkla Food Ingredients and restaurants showing signs of weakness Valuation multiples above normal following strong share performance
While the OSEBX is down 20% YTD the Orkla share is up, as Covid-19 has resulted in temporary hoarding of certain foods and household products. Orkla is also benefitting from NOK weakening, low interest rates and risk aversion. While all these factors could last for a while, we argue that this is the time to cash in your profits. We reinitiate coverage with a Sell recommendation and a TP of NOK 80, as we expect focus on long-term challenges to drive multiple contraction.
Research Tree provides access to ongoing research coverage, media content and regulatory news on Orkla ASA. We currently have 15 research reports from 2 professional analysts.
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