Midsona: The grass looks greener in H2 - ABG
This is a third party research report and does not necessarily reflect our views or values
Key takes from the Q2’21 report
Midsona’s Q2 report was on the softer side. Sales came in at SEK 903m, 7% below our expectations at SEK 973 and 8% below consensus expectations at SEK 982. The back-end loaded seasonality of System Frugt is becoming very apparent, and the company has started to build up inventory for the company’s high-season, September-December. Furthermore, the company has seen some difficulties with one of its customers in the North Europe region concerning timing overlaps on a product line delivery change. On profitability, the gross margin held up well despite the addition of System Frugt, which has a lower gross margin and expanded to 28.3% (Q2’20: 27.9%) due to mix, pricing and FX. Q2 Adj. EBITDA came in at SEK 78m, 22% below our expectations on the back of scale, higher marketing costs and non-NRI integration costs than we expected.
Outlook: EBITDA growth in June and easy comps in Q3
While sales started off with continuously rough comps, the company states that it has seen continuous improvement throughout the quarter and saw y-o-y growth in June on EBITDA. Looking at June 2020, the company had not started to see the de-stocking effects which hampered Q3’20, which should speak for good momentum going in to Q3. While the gross margin is likely to be slightly weaker during H2 on the back of a higher share of System Frugt sales, we expect this to be compensated by scale, realising synergies as well as the lighter marketing budget, in turn leading to margin expansion and positive organic growth numbers again. Further, the CEO stated on the conference call that the M&A market is opening for them, with possible action already during H2’21.
Share trading at 22-16x EBITA on ‘21e-‘23
On the back of the report, we lower our sales by 2% and adj. EBITDA estimates by 5-4% for ‘22e-‘23e. On our estimates, the share is trading at an EV/EBITA adj. of 22x-16x ‘21e-‘23e, roughly in line with peers.
Midsona’s Q2 report was on the softer side. Sales came in at SEK 903m, 7% below our expectations at SEK 973 and 8% below consensus expectations at SEK 982. The back-end loaded seasonality of System Frugt is becoming very apparent, and the company has started to build up inventory for the company’s high-season, September-December. Furthermore, the company has seen some difficulties with one of its customers in the North Europe region concerning timing overlaps on a product line delivery change. On profitability, the gross margin held up well despite the addition of System Frugt, which has a lower gross margin and expanded to 28.3% (Q2’20: 27.9%) due to mix, pricing and FX. Q2 Adj. EBITDA came in at SEK 78m, 22% below our expectations on the back of scale, higher marketing costs and non-NRI integration costs than we expected.
Outlook: EBITDA growth in June and easy comps in Q3
While sales started off with continuously rough comps, the company states that it has seen continuous improvement throughout the quarter and saw y-o-y growth in June on EBITDA. Looking at June 2020, the company had not started to see the de-stocking effects which hampered Q3’20, which should speak for good momentum going in to Q3. While the gross margin is likely to be slightly weaker during H2 on the back of a higher share of System Frugt sales, we expect this to be compensated by scale, realising synergies as well as the lighter marketing budget, in turn leading to margin expansion and positive organic growth numbers again. Further, the CEO stated on the conference call that the M&A market is opening for them, with possible action already during H2’21.
Share trading at 22-16x EBITA on ‘21e-‘23
On the back of the report, we lower our sales by 2% and adj. EBITDA estimates by 5-4% for ‘22e-‘23e. On our estimates, the share is trading at an EV/EBITA adj. of 22x-16x ‘21e-‘23e, roughly in line with peers.