da Intermonte – FINE FOODS company research report

Buon pomeriggio,

di seguito e in allegato inviamo il company research report relativo a FINE FOODS a cura di Intermonte.

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Un caro saluto,                                      
Lucrezia Pisani

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Continued Operational Recovery in 3Q in Still-Challenging Market

• 3Q/9M preview: we expect the top line to have come to €151.2mn in 9M, an improving YoY trend (9M: +5.5% YoY of which 1Q: -1.1%, 2Q: +3.1%, 3Q: +15.9%), supported by very strong trends in Pharma (9M: +38% YoY of which 1Q: +19%, 2Q: +49%, 3Q: +51%) leading to €39.2mn revenues in 9M (39% of total sales), an impressive result, if confirmed, as it would mean that in just 9 months the company would have even exceeded its entire FY21 Pharma turnover (€38.3mn). In addition, we would also note the boost from the Euro Cosmetic consolidation (since 4Q21) to the Cosmetic top line (9M22: €26.5mn vs. 9M21: €8.8mn). On the other hand, we expect trends to have remained negative in Food (9M: €85.6mn -19.6% YoY, 57% of sales) which in 1H (-22.5% YoY) was hit by shrinking output for markets affected by the Russia-Ukraine war and the slowdown of client activities in Multilevel Marketing, resulting in an anticyclical downturn in sales in the post-Covid recovery. Adj. EBITDA should have reached €12.3mn in 9M (8.2% margin), assuming similar profitability as in 1H (8.3%) hit for c.2pp by rising energy costs, and production inefficiencies (procurement difficulties and rising raw material prices). To cope with the economic situation, we remind that the Group has adopted a policy of passing on higher raw material, packaging and energy costs to customers. At bottom line, we would expect to see incremental losses (9M: -€8.8mn, 1H: -€5.6mn) mainly due to the performance of financial assets held by the parent company, which in 1H had a negative mark-to[1]market of €5.8mn (asset portfolio worth c.€65mn in 1H22, with a 74% bond/26% equity mix) with no impact on cash. Net debtshould have closed higher at €49mn (1H: €42mn) assuming further working capital absorption in 3Q related to the rise in trade receivables and inventories due to raw material and packaging procurement issues.

• Updated estimates. We are confirming our FY22-24 top line and EBITDA estimates, while fine-tuning below EBITDA to reflect higher D&A and accrued non-monetary losses related to the mark-to-market performance of financial assets held by the parent company (we assume a further €3mn of losses in 4Q on top to the c.€9mn expected for 9M). These changes have no impact on FCF, despite the revision in 2022 EPS. No change in 2023-24 adj. EPS at this stage.

• OUTPERFORM confirmed; target still €12.0. With no impact on cash from revised estimates and applying the same WACC (8.6%), our DCF model leads usto confirm our €12.0 TP. Despite the complete unpredictability of energy cost trends, we appreciate the effectiveness of the turnaround strategy undertaken so far and management’s confidence in the short/medium-term outlook thanks in part to the continuing improvement of supply chain problems: this prompts us to confirm our positive rating. Fine Foods is well placed to outperform peers, having largely outgrown its core end[1]markets in the last decade, and enjoys solid operating trends by leveraging its critical mass as the largest Italian CDMO, highly visible customer demand (resulting in enduring relations and increasing share of wallet), and the additional capacity secured through investments, as well as the ability to seize further M&A opportunities for quality assets in adjacent markets or to act as a natural aggregator.