Anora Q2'24: Slowly getting better

This report is a summary translation of the report “Hitaasti parempaan päin” published on 8/20/2024 at 7:40 pm EEST.

Anora's Q2 results improved slightly on the comparison period and met our expectations. The company reiterated its full-year guidance, which was expected, although our forecast is close to the low end of the range. Our forecast was largely unchanged, and we continue to believe that the company will be able to significantly improve its results in the coming years compared to last year’s weak performance. The valuation is neutral for this year, but attractive for the coming years (P/E below 10x). We reiterate our Accumulate recommendation and target price of EUR 5.0. 

Q2 result in line with our expectations, better revenue

Anora’s revenue decreased by 3% year-on-year, significantly less than we expected (-10 %). The decline was due to a deterioration of the Industrial segment (albeit also less than we had expected), but the beverage segments Wine and Spirits managed to perform at around the same level as in the comparison period, while we had expected a decline of around 5%. Anora's adj. EBITDA improved year-on-year (13.1 MEUR) and amounted to 15.2 MEUR, almost in line with our expectations (15.5 MEUR). The comparison period was particularly weak in the Wine segment, while the beverage segments improved their profit and margin in comparison and Industrial's result deteriorated as expected due to lower prices and volumes. Gross margin was slightly below our expectations in all segments, but improved clearly from the comparison period, partly due to price increases.

Guidance unchanged, profitability likely to improve in 2024-26

Anora's guidance continues to indicate that 2024 adj. EBITDA will be 75-85 MEUR. Our forecast remains at
76 MEUR, and there were no other significant changes in the forecasts. Therefore, we see a risk of missing the guidance if, for example, the market continues to decline more sharply than expected during the rest of the year. Anora's 2023 performance was weak relative to its history and, in our view, to its potential, mainly due to three factors: 1) the weakening of the SEK and NOK, 2) the poor performance of Globus Wine (Denmark), and 3) the loss of principals in wine distribution. All of these mainly affected the Wine segment. On the first point, price increases have already clearly improved the situation in Q4’23 and the increase in currency hedges will support a smoother development going forward. Addressing points 2 and 3 will be slower and we believe will be done gradually in 2024-25; for Denmark, the company said H1 had progressed as expected, although no specific figures were given. In addition, cost-management measures will support the result already this year. We expect Anora's earnings to continue their upward trend in 2025-26, driven by efficiency measures and growth, to a level of around 90 MEUR adj. EBITDA, which we consider somewhat normal for Anora. This means an adjusted EBITDA margin of around 12%, which is still well below the company's target of 16% in 2030.

2024 valuation relatively neutral, earnings growth and dividend offer reasonably good expected returns

Anora's P/E of 12x for this year is at the midpoint of our acceptable multiple range, and we view the valuation as relatively neutral based on our forecasts for this year. However, earnings growth and the dividend offer a reasonably good expected return in the coming years, which is above our required return. The P/B ratio of 0.7x also offers an upside, as we believe that the return on capital will be close to our required return in the long run, and thus around 1x is an acceptable level for the next couple of years. The usefulness of EV ratios is weakened by lease liabilities and off-balance sheet sales of receivables. The DCF value is in line with the target price.