The Q2'24 numbers beat our estimates on sales and adj. EBIT by 3% and 18%, respectively. Thanks to a slimming of the organisation, reduction of SKUs and a shift in the business mix, the company is now more working-capital efficient. This is clearly positive for a company that aims to further de-leverage its balance sheet. From an operating point of view, the company will solve its production-related bottleneck issues in North Europe in Q3, and the production capability in Spain can also improve. However, the market weakness in South Europe will take a longer time to resolve, and is not within the company's control. Nevertheless, this report serves as additional evidence that the company is on the right track toward achieving its financial targets.
'24e-'26e adj. EBIT up 3-1%
We raise '24e-'26e sales by 1% and raise '24e-'26e adj. EBIT by 3-1% after the report. Our organic growth estimates continue to be at the lower end of the company's targeted range. It is likely that discontinuations will continue in H2'24e, and potentially also in H1'25e. The minor moves in the CPI and PPI figures mean that players such as Midsona should benefit from stable conditions for grocery retailers and consumers. We continue to believe that selective M&A and potential buybacks are viable capital allocation alternatives for Midsona once the leverage ratio reaches the 1-1.5x range.
Implied valuation
Based on our revised estimates, the company is trading at ~11x NTM EV/EBITA, which is in line with current peer multiples. We note that peers, in turn, are trading ~25% below the 10-year historical median of nearly 15x NTM EV/EBITA.
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