Midsona: Continues to benefit from stable conditions - ABG

- We cut '25e-'26e EBIT by 2%...
- ...and still expect no organic growth in '24e
- Trading at NTM EV/EBITA of ~9x

What to expect in Q2'24e
We anticipate flat y-o-y organic growth in Q2'24, which would mark the first quarter with non-negative organic growth in seven quarters. As we have previously written, we expect only minor (or even negligible) y-o-y positive effects from the price negotiations with grocery retailers that came into effect in February. We expect Q2 sales of SEK 884m and an adj. EBITA of SEK 31m, which implies a margin of 3.4%. Operating cash flow should be in negative territory, as Midsona will need to tie up capital to grow its most popular brands and to ultimately win shelf space.

Estimate changes
We cut '24e-'26e sales by 1-2% and therefore cut '25e-'26e adj. EBITA by 2%, primarily on an FX update. This means that our organic growth estimates are in line with the lower end of the company's targeted range. We expect additional discontinuations in 2024e, but with the bulk of discontinuations and divestments having been completed, we do not expect an impact beyond 2% of sales. In terms of margins, we assess that undramatic moves in CPI and PPI figures should be beneficial for players such as Midsona, which is sensitive to rapid changes in consumer and grocery retailer behaviour. As we have mentioned in previous notes, we believe that selective M&A and potential buybacks could be a realistic alternative once the leverage ratio reaches the range of 1-1.5x (Net debt/EBITDA).

Implied valuation
Based on our revised estimates, the company is trading at ~9x NTM EV/EBITA, which is 15% below current peer multiples. We note that peers, in turn, are trading 25-30% below the 10-year historical median of nearly 15x NTM EV/EBITA.