The report came in below our expectations

A perfect storm on all fronts

We lower our EBIT estimates by ~10% for ’21e-’23e

Headwinds piling up
Q3 was expected to be a quarter with easy comps, with organic growth (in combination with synergies) leading to a significant margin expansion. The company instead came in 10% below our sales expectations (8% vs. FactSet cons) with a top line of SEK 893m. This led to an EBITDA miss of 20% vs. our expectations and -27% vs. cons. Midsona is experiencing headwinds on most fronts. The company has, like many others, been affected by supply chain shortages. Moreover, Midsona has fallen victim to several unfortunate harvests. These factors have limited its ability to meet demand, which has also been lower due to negative reopening effects. With some sales channels such as health food stores often being located in cities, volumes have been hurt significantly as traffic has shifted toward restaurants. Although some of these problems were known beforehand, we still expected a stronger delivery. On the back of the Q3 report, we lower our sales and adj. EBIT for ’22e-’23e by 5% and 10%, respectively.

Q4 and 2022 thoughts
Management stated on the call that it has seen some first signs of pressure on raw materials prices. Like all the other headwinds, these should be possible to overcome, but improvements might not be visible until after Q4. In light of the current external uncertainties, in combination with reopening headwinds and tough comps (10% org. growth Q4’20), we now expect a negative organic growth of 11% in Q4’21e. Given this development, we also expect an EBIT margin decline of c. 1pp y-o-y for the quarter. Looking into 2022e, we expect conditions to be easier. With (presumably) a better supply chain situation and visible synergies from System Frugt, in combination with easy comps and price hikes, we believe that the company should be able to reach a margin of 6.6%, in line with 2020, which is not high in a historical context.

Trad
...

research@abgsc.com (Introduce.se)

ABG Sundal Collier - Introduce.se