Midsona: No pain, no grain - ABG

Gross margins to indicate extent of pricing power

’22e-'23e EBIT down 6-5%, while ‘24e EBIT up 8%

Q3 report due Tuesday, 25 October

We expect sales of SEK 1,006m and EBIT of SEK 32m in Q3
For H2’22, we keep our eyes on gross profit margins, which will shed light on Midsona’s competitive position in the market and the strength of that position in negotiations with Midsona’s clients. Typically, price and product launch schedules are amended twice per year but some of Midsona’s clients make changes more frequently, and that should impact Midsona in a slightly positive way in Q3. However, the lion’s share of price amendments will come during Q4’22e. As of August 2022, the gap between the producer price index and consumer price index (sourced from Statistics Sweden) is still elevated, a bleak data point for Midsona’s Q3.

Gross margin normalisation anticipated in H2’23e
While significant focus has been devoted to gloomy macroeconomic circumstances recently, we would like to highlight System Frugt, an acquisition that has been described as challenging from an integration point of view. While 2021 and 2022 were challenging from an operating and macroeconomic perspective, respectively, we see upside due to System Frugt’s long-term contracts that can generate significant positive earnings surprises in a disinflationary environment, as early as H2’23e, we believe. We raise our sales estimates solely due to FX tailwinds but lower our EBIT estimates due to cost inflation and high energy prices that are tough to offset for the period ‘22e-‘23e. We anticipate a rebound in ‘24e thanks to long-term contracts that benefit from disinflationary forces. We have revised down EPS in ’22e-‘23e due to higher anticipated interest rates that will affect Midsona’s variable rate debt.

Look further down the road
The upcoming 12 months are likely to contain elements that pose a challenge to Midsona’s financial performance. However, by looking further than 12 months out, we see potential for Midsona to mo ...
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