Midsona: Awaiting the H2 hockey stick - ABG

Q2 showed a resilient top-line but lower margins We lower our ‘23-‘24e EBITA by 5% Trading at ’22-‘24e EV/EBITA 19-10x Q2 report in brief
Midsona’s Q2 was in line with our top-line estimates but below on profitability. While we had expected price hikes to improve profitability during Q2 vs. Q1 despite a lower top-line on price increases and cost savings, these efforts were not enough to quickly break the trend, resulting in adj. EBITDA of SEK 34m vs our expectations of SEK 60m. Adj. EBIT turned negative in the quarter, landing at SEK -7m. Whereas the company had guided for price hikes in June, these now seem set to take place in July and later in Q3 instead. Coupled with continuous execution on the cost savings programme, as well as other cost savings, margins should pick up from here.

Continued external headwinds – cash flow a positive The company mentioned continuous external headwinds such as the weak SEK vs. EUR and USD as well as raw materials, which remain significantly higher y-o-y. On a positive note, the company mentioned that after significant purchasing price increases in the beginning of the quarter, input price increases flattened out somewhat later on, speaking to a stronger margin impact from the company’s own price adjustments. Furthermore, we note falling commodity prices during the last couple of weeks. Should the harvest season turn out positive, these two factors could result in a rare tailwind for the gross margin. Cash flow was positive, and management commented on the call that it should remain positive in Q3.

Trading at a ’22-‘24e EV/EBITA of 19-10x On the back of the report, we leave our sales estimates relatively unchanged and lower our EBITA estimates by 5% for ’23-‘24e on the lower-than-expected margin as well as negative FX movements since our last update. For 2022, our adj. EBITA estimates come down by ~15%, largely on the mechanical effect. On our updated estimates, the share is trading at a ’22-‘24e EV/EBITA of 19-10x.

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