Midsona: Margin improvement delayed - ABG

Sales was in line with our expectations Effect from price hikes was partly delayed to Q3 We expect negative cons. estimates of 5-8% Q2: top line holding up, margin improvement delayed
Midsona’s Q2 report showed continuous headwinds from the difficult environment. Organic growth held up in positive territory at 0.4% (ABGSCe 0%), but the margin continued downwards, with an adj. EBITDA of SEK 34m for a margin of 3.6%, down 5pp. y-o-y. This was 44% below our expectations of a ~flat q-o-q EBITDA development to SEK 60m. Considering the soft exit rate in Q1 due to the initial input price inflation, and that Q2 historically has seen lower profitability than Q1, the quarter showed a q-o-q development relatively in line with its history vs. our expectations of a sequential improvement due to price hikes and cost savings. The company mentions that a large part of the price hikes has been implemented during July, and that more should be expected during Q3, meaning we should see sequential improvement continuously during H2. On a positive note, the company managed to deliver a positive cash flow (FCF SEK 53m) despite the headwinds.

External FX & raw mat headwinds Management comments the external factors such as negative FX effects (USD & EUR) as well as raw materials. However, we note that many raw materials have already started dropping significantly in price. Should this year’s harvests become successful, we could be looking at an external factor aiding the company - a rare event looking at the last year.

Cons. estimate changes likely negative The mechanical effect on isolated Q2 numbers is 0% on sales and -9% on adj. EBITDA on our ‘22e numbers. On the back of today’s report, we could see see cons. estimates coming down by mid-to-high single digits.

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