EXECUTIVE SUMMARY
AN UNFAVORABLE FY 2021 ..., NOT IMPACTING THE GROWTH MODEL
The release of Mutandis H1-21 results takes place in a particular context. On the one hand, the Group announced a few months ago the acquisition of the company Season based in the United States. This should become part of the Group's consolidation scope starting from August. On the other hand, the surge in international commodity prices should continue to weigh on the operator's margin levels during the second half of the year.
Under these conditions, we have updated our growth forecasts and our valuation of Mutandis stock. At the end of this exercise, we come out with the following conclusions :
- Thanks to the diversification of its activities portfolio, Mutandis manages to stabilize its revenue level at MAD 689 Mn in H1-21. In more detail, the good performance of the “Food Bottles” and “Fruit Juices” business lines offset the one-off downturn in the “Detergents” and “Seafood” segments;
- The drop in the EBITDA margin of -0.9 pt from 15.3% to 14.4% is mainly due to the fact that Mutandis did not impact the surge in input prices on its selling prices. This situation should persist during H2-21 before hoping for a gradual readjustment starting from 2022. Under these conditions, we have revised downwards our initial scenario of margins evolution during the period 2021-2023;
- The acquisition of the company Season, the reference brand of "premium" Sardine in the USA, is a major step in the development of Mutandis. During the period 2022-2023, the company will contribute considerably to the results of Mutandis through an average revenue of MAD 480 Mn. an average EBITDA of MAD 67 Mn and an average net income of MAD 54 Mn. The latter would represent nearly 45% of the Group's recurring profits over the studied period;
- The impact of the Season acquisition on the valuation of Mutandis stock was limited by the downward revision of future margin levels. Nevertheless, this operation would allow Mutandis’ profit to cross the threshold of MAD 130 Mn by 2023 against an average of MAD 75 Mn since the IPO. This is an increase in the net profit of +76%, which translates positively to the stock's P/E ratio. The latter would settle at a relatively attractive level in 2023, i.e. 15.7x
against a reference of 21x for the equity market;
- At the end of our valuation exercise based on the DCF "sum of the parts" method, we revise our target price of Mutandis stock to MAD 305 against MAD 273 initially, justified exclusively by the new acquisition of the company Season. This represents an upside of 17% over a MT horizon. In the end, we keep our recommendation to BUY the stock.
A resilience in revenue thanks to the diversification of the business portfolio
After a significant drop of -9.9% during Q1-21, Mutandis' consolidated revenue shows a significant recovery of 11.4% during the second quarter of 2021. To this end, the operator's half-year revenue remained almost stable at MAD 689 Mn against MAD 683 Mn a year earlier. These achievements are slightly below our initial 2021 forecasts through an achievement rate of 46% at the end of this first semester.
When analyzing the change in the operator's revenue in H1-21, we note two major findings:
- An increase of 81.2% in the "Food Bottles" activity benefiting from a double price/volume effect due to the rise in international PET prices and the recovery in out-of-home consumption. For its part, the "Fruit juices" activity recorded an increase of 14.6% in H1-21, driven by the repositioning of the Group's two own brands, namely Marrakech Pulp and Vitakids;
- A -12.6% decline in the "Detergents" business line caused by an unfavorable base effect due to the overconsumption of this type of product in H1-20. At the same time, the "Seafood products" activity fell by -11.2%, reflecting the difficulties in supplying Sardines from Laayoune region. As a reminder, this region represents nearly 50% of the supply of Sardines from Mutandis.
A surge in input prices weighing on margin levels
At the end of this first half-year, Mutandis¡¦ EBITDA settled at MAD 99 Mn, down -4.9% compared to H1 -20. This is a decrease of -0.9 pt in the EBITDA margin to 14.4%. These achievements remain lower than our initial forecasts through a 2021 achievement rate of 40%.
At the origin of this discrepancy with our forecasts, the unprecedented rise in international commodity prices and the cost of transport, which could not be fully reflected in selling prices. According to the Management, the prices of chemical raw materials used in the "Detergents" activity have increased between 15% and 40%. For their part, the prices of cardboard and plastic packaging would have followed the same trend. Finally, soybean oil prices would have jumped by 40% also due to the poor global harvest. Taking into account the continued acceleration in international commodity prices during Q3-21, pressure on margins should therefore persist.
Meanwhile, it should be noted that the surge in input prices was partially limited by the operator's rationalization of its payroll and its Marketing expenses.
An earing power below our initial forecasts
The reported NIGS fell by -16.0% year-on-year to MAD 28 Mn in H1 2021. This is an achievement rate of 32% compared to our initial estimate of MAD 86 Mn for the entire FY 2021.
At the origin of this underperformance, the significant deterioration in margin levels in a context marked by the increase in input prices combined with the 4.4% rise in the depreciation level due to the Group continuous development efforts.
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