Midsona - Mind the gap, it is shrinking - ABG

Q4 estimate changes
Q4'22e is likely to be similar to Q3 in a few ways, with a gross margin below 20% on a group level and limited price increases. For Q4e we cut organic growth by 1pp to 0% and the gross margin by 350bps to 19.5%, on the back of persistent food inflation and a lower estimated likelihood of meaningfully passing on incremental cost inflation to pharmacies and health food stores. That said, we believe that Midsona should have a better chance of passing through price increases to its grocery trade clients, starting in Q1'23e.

Looking further ahead
With the CPI-PPI gap apparently reverting to historical levels, so should the margins. We will likely see a smoothening effect (on the upside) in early Q1 coming from the contract manufacturing business continuously renegotiating expiring 12-month contracts, but the bulk of the margin normalisation should occur after the price negotiations with grocery traders are complete. Overall, we believe that Midsona's product offering is so attractive for the margins of grocery traders as to warrant meaningful price increases going forward. We cut '23e sales by 1% and gross margins by 90bps to better account for lag effects in price negotiation windows in Q1e and Q3e. Consequently, we cut EBITA by 2% for '23e-'24e.

Implied valuation
Based on our revised estimates, the company is trading at 8x '23e EV/EBITA, which is ~30% below peer multiples.

Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/midsona/Equity-research/2023/1/midsona---mind-the-gap-it-is-shrinking/