Sales -4% and adj. EBIT -3% vs. ABGSCe

Organic growth 2.5%, prioritised brands 12.2%

M&A is back on the agenda

Q2 relatively in line, adj. EBIT -3% vs ABGSCe
Midsona’s Q2 report came in relatively in line with our expectations. Sales were SEK 859m (-4% vs. ABGSCe SEK 896m). Organic growth came in at 2.5%, with food service declining heavily. On the positive side, the acquisitions from 2019 (Alimentation Santé and Eisblümerl) showed positive progress, with pro forma adj. organic growth of 8%. The gross margin of 27.9% came in well below our forecast of 29.2%. We had anticipated a larger effect from the price hikes, but the seasonality effect and the lower-than-group average gross margins in the 2019 acquisitions were offsetting. However, cost efficiency on opex still made the adj. EBIT margin increase 2.5pp. y-o-y to 7.2%, spot on with our expectations.

M&A is back on the agenda
Through the acquisition of Gainomax (~8x EBITDA) in June, Midsona showed that M&A is back. Although ND/EBITDA lies in the middle of the announced leverage target (3x-4x) the strong cash conversion still enables an active acquisition agenda ahead. The acquisition itself was rather small in relation to the group, and our updated FX model offsets the additional sales from it. We lower our sales forecast by 1.3% for 2020 and leave ‘21e and ‘22e relatively unchanged. On the back of the cost control shown during Q2, we lower our opex assumptions, resulting in an EBIT increase of 0.9%-1.5% in ‘21e-‘22e. Furthermore, the margin experienced FX tailwinds for once. However, on the back of the lower Q2 gross margin, we make slightly negative gross margin revisions.

Stock is trading at EV/EBITA of 13.8x on 2022e earnings
On our updated estimates, the Midsona share is trading at ‘20e-‘22e EV/EBITA and EV/EBIT multiples of 18.4x-13.8x and 21.8x-15.8x, respectively. On 2022 estimates, the share is trading between 4% and 7% below our peer group.

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