Anora: Weakened earnings potential

Translation: Original published in Finnish on 10/15/2024 at 7:31 am EEST.

Anora lowered its guidance for this year by more than we expected. In our view, this also reflects a weakening in the company's longer-term earnings potential, which led us to significantly lower our forecasts for the next few years and the longer term. While we still expect the result to improve in the coming years, we do not see the stock as attractive given the company's weak fundamentals and a relatively neutral valuation (P/E 10x) for 2025. We lower our recommendation to Reduce (was Accumulate) and the target price to EUR 3.8 (was EUR 5). 

Anora's guidance for this year sharply lowered

Anora lowered its guidance yesterday and now expects full-year adj. EBITDA to reach only 65-70 MEUR, compared to the previous guidance of 75-85 MEUR. Our previous forecast was at the lower end of the old guidance (76 MEUR), so the old guidance looked tight. However, even at this stage of the year, ahead of the crucial Q4 for the company, such a significant reduction of the guidance was a definite negative surprise. The company cites the weak market development in September in particular as the reason, but we believe that the development has been sluggish throughout the year and, on the other hand, the margin improvement has remained weak (partly due to the lower volumes). The new guidance suggests that the result will remain roughly at last year's level (68 MEUR) and that the H2 result will deteriorate from the comparison period. In H1, adj. EBITDA had slightly improved from the very weak comparison period and after Q2, adj. EBITDA for the last 12 months was 71 MEUR. Our new estimate for 2024 is at the upper end of the new guidance range, at 69 MEUR.

Our expectations for Anora’s earnings potential declined

Although we believe that the profitability of the Danish wine business (Globus Wine) and the Industrial segment, among others, can be improved in the coming years and that, secondly, consumer demand is expected to recover next year, we do not see Anora reaching the earnings level we previously expected in the coming years. This is partly due to the sluggish growth outlook for the alcohol market (and the risk of even further market decline) and, in our view, the company's limited ability to significantly reduce its costs. At least in wines, the main competitor Viva Wine Group has also been systematically capturing market share for years, while Anora has fared less well. In our view, these factors limit the potential for earnings improvement from current levels. We have also lowered our adj. EBITDA forecasts for 2025-26 by around 15%, which has led to a 20-30% reduction in our earnings per share forecasts. As a result, we have also reduced our dividend forecasts.  We now expect Anora's adj. EBITDA to remain in the range of 75-80 MEUR also in the longer term, whereas previously we expected some sort of normal result of around 90 MEUR in the medium term. We have also lowered the long-term earnings expectations in our DCF model.

Weak fundamentals and valuation fail to attract despite earnings improvement potential

Anora's P/E of 14x this year is above our acceptable multiples, but next year's 10x is already at a neutral level, although still not particularly attractive in our view, given the weak growth potential and returns on capital close to the required return. If the earnings improvement we predict materializes, there is some upside in the stock, supported by a dividend yield of around 6% over the next few years. However, we note that the company has missed both its own guidance and our forecasts in recent years and its performance is sensitive to, among other things, volume developments and changes in raw material prices. 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.