Anora Q2'24 preview: Market volumes in decline

This report is a summary translation of the report “Markkinavolyymit laskussa” published on 8/13/2024 at 9:15 pm EEST.

Volumes in Anora's monopoly markets appear to have been weaker than expected in Q2, which is why we have lowered our forecasts ahead of the company's Q2 report next Tuesday. Our full-year result forecast is now close to the lower end of the guidance range. However, we still see earnings growth in the coming years, with a reasonably good expected return on the stock. We reiterate our Accumulate recommendation but lower our target price to 
EUR 5 (was EUR 5.3).

Q2 market development weak in Norway and Finland

Based on sales statistics published by the monopoly alcohol retailers, Q2 performance has been weak in Finland and Norway, where spirits and wine volumes declined by around 10% in the quarter. The decline is partly explained by the timing of Easter and fewer selling days in June. In Sweden, the trend has been more stable. In Q1, all main markets were close to last year's levels, supported by the timing of Easter sales in March. We estimate that Finland and Norway account for just under half of Anora's beverage sales and the market has developed weaker than previously expected. As a result, we have lowered our forecasts for this year's adj. EBITDA by around 5%.

We still forecast year-on-year earnings improvement in Q2

In Q2, we expect revenue to have declined in all segments due to the aforementioned weak market volume development and lower volumes and price levels in the Industrial segment, which have already been clearly visible in previous quarters. However, the comparison period was very weak in terms of earnings, especially in the Wine segment, which turned into a loss at the level of adj. EBITDA. The company's gross margin has improved significantly year-on-year as price increases have finally been able to compensate for cost and currency changes. In addition, Anora has improved the efficiency of its operations. As a result, we expect a slight earnings improvement in Q2 (adj. EBITDA 15.5 MEUR vs. 13 MEUR in the comparison period) despite the declining revenue. We expect the improvement to come mainly from the Wine segment, while Industrial's results are forecasted to be below the comparison period.

Full-year forecast falls to the lower end of the guidance range

We lowered our full-year adj. EBITDA forecast to 76 MEUR, while Anora's guidance is 75-85 MEUR. The guidance assumes "slightly" lower volumes than last year, which we believe is still true for H1 as a whole, but the volume decline seems to have been greater in Q2. In our view, this also brings downward risks to the company's guidance. We continue to forecast a clear improvement in earnings for the coming years, but a weaker-than-expected performance this year naturally poses a risk to future earnings growth as well.

2024 valuation relatively neutral, earnings growth and dividend offer reasonably good expected returns

Anora's P/E of 11x for this year is at the lower end of our acceptable multiple range, and we view the valuation as relatively neutral based on our forecasts for this year. However, earnings growth and the dividend offer a reasonably good expected return in the coming years. The P/B ratio of 0.7x also offers an upside, as we believe that the return on capital will be close to our required return in the long run, and thus around 1x is an acceptable level for the next couple of years. The usefulness of EV ratios is weakened by large lease liabilities and off-balance-sheet sold receivables.