Midsona
Midsona - Several negatives, but picking up pace in Q4 (ABG Sundal Collier)
2020-10-23 00:39
Q3 was softer than expected
De-stocking and capacity investments a drag
Adj. EBIT estimates down 12-7% ‘20e-‘22e
Sales miss due to de-stockingMidsona’s Q3 report was softer than ours and consensus expectations. On the sales side, the company grew negatively at -1% (ABGSCe 4%), which was significantly below what we’ve seen throughout the year and unexpected. The major explanation to the soft sales was de-stocking among the company’s customers. This led to a weak development during July and August, while the company has seen a normalisation of volumes during September and the start of Q4. Given the strong communication regarding volume pick-up, we trim our sales estimates by -2% for ‘20e, ‘21e and ‘22e.
A perfect storm on the margins
Midsona’s reported Q3 margins were also lower than expected, partly due to the lower scale benefits from the top line. The gross margin was the large deviation explanation, coming in at 27.2%, 2pp below our expectations. There are some explanations to this apart from the scale factor. The biggest explanation is large debottleneck investments in production, which should be non-recurring. These investments were due already during H1’20, but were unable to take place given the demand picture during the period. Furthermore, product mix and raw material prices had a negative impact. On the other hand, FX should have supported the gross margin positively. All-in-all, although there were several short-term aspects pressuring the gross margin, we have a hard time finding that all negative effects should be seen as one-offs, and thus lower our gross margin assumptions only slightly, which in combination with the lower scale means negative EBIT revisions of 8-7% in ’21-‘22e.
Hopefully a one-off quarter, but Q4 will be important
Several things went wrong for the company during Q3, with many effects seeming to be one-offs. With the company stating that Q4 has started our decently, the next quarter will be important to show the story is intact. On our up
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