Investment Banking heeft met de opkomende cijfers voor haar klanten een rapport gemaakt
" Q3 Food Previews "
In Food , Q3 is a quarter where DANONE ( report Oct 19th ) , NESTLE ( report Oct 20th ) and UNILEVER ( report Oct 21st) only report revenues but with so much focus on input costs and margins, we are expecting updates on inflation pressures and margins
We expect Nestle and Danone to hold margin guidance ( they have stronger pricing power ) , but we see risks to Unliveer's margin guidance
we expect some normalization of sales growth in Q3 after a very solid strong Q2 , where Nestlé delivered 8.5% organic growth, Danone close to 7% and Unilever 5%
for this quarter (Q3) we forecast Nestlé to deliver 4.3% OSG ( consensus 3.6%) , Danone 4.2% ( consensus 3.5%) and Unilever 2.2% ( consensus 3.1%)
following the release of company compiled consensus 2 companies ( Nestlé and Danone ) are ahead of consensus and 1 company ( Unilever) comes short on consensus
whilst top-line trends will be of some interest, we expect investor attention to be much more focused on margins and input cost guidance
The concern is, as inflation continues to spiral, it may force companies to revise down their margin guidance
Six companies in our wider EU Staples coverage ( see previous report ) already lowered margin guidance at the H1 stage, and there could be more to come
The issue for the above 3 companies is not just the agricultural raw materials, their employed traders have hedging facilities on crops , but a significant increase in logistic and distribution costs ( where hedging is not or much less prevalent ) This is particularly the case in the UK
focus is also very much on the energy costs where shortages across Europe are driving up prices to record levels ( not so much in the States )
looking at UK natural gas futures prices have doubled since the beginning of September and are up 500% year on year !
If this holds, consumer disposable income will be hit hard and give private label producers a gain
At this stage :
- Unilever increased its guidance ( inflation / cost on the raw materials ) to high teens and could revise further up to 20%
- Danone is informing 8 to 9%
- Nestlé have flagged 4%
to offset inflationary pressure, companies are looking hard at their cost base but will also need to step up pricing
Hedging gives companies time to implement and cushion price increases
but once the hedging runs out ( 2 to 3 quarters time out) the real cost will hit the pricing
now as for these 3 companies
Danone :
consensus is expecting OSG in Q3 of 3.6% , we are at 4.3% as Danone is well positioned in China and we are seeing a China recovery
and FY21 EBIT margin , we expect Danone to be able to maintain their margins around 14%
for 2022 we see Danone holding margins flat , before resuming margin progress in 2023
Investment case: we think DANONE is at a turning point
there are new Board members ( 10 out of 13 will be replaced ) and a new CEO 5 Antoine de Saint-Affrique)
we estimate Danone to grow 3-4%
we think Danone can hold margins for 2022 and growth for 2023
we value Danone at PE 22x multiple , which leads to a PT for 2023 ( 18 months out) of 75 Euro
Danone : market cap: euro 39,5 bn
12 month low-high: 46 - 65 euro
PE x 18
dividend : 3.25%
recommendation: outperform , buy on weakness
NESTLE
Nestle has better visibility on margins than the vast majority of its peers
Nestle's traders are very good at hedging and Nestlé is hedged on many of its agricultural raw materials , but it has not been able to hedge transport/logistics, which are mainly done at spot
Clearly Nestle will also have to up the prices, but Nestlé has more than all others pricing power
In our recently hosted fireside chat with Nestle CFO and their head of zone Americas , they made the point that 80-85% of its categories have number one or number two market positions and hence will be able to pass over time higher costs
Investment case:
If Nestlé can deliver mid-single-digit growth sustainably ( we believe they can ) , this should continue to drive significant value creation for Nestle stock holders on the long run
Nestle continues to stand out in terms of defensive qualities and they have a very strong portfolio
the next growth engine for the coming decade looks like Health Science , which Management believes can be as strong as Coffe and Pet-food ( Nestlé's top performers)
for the next 18 months we remains overweight on Nestle PY 125 CHF
Nestle market cap : 325 bn CHF
12 month low-high: 95 -117 CHF
PE x 26
dividend: 2.5%
UNILEVER
at this stage UNILEVER revised its H2 inflation guidance from low teens to high teens
since Q2 inflation has continued to creep up and another revision is possible when Unilever reports Q3 on Oct 21st
Unilever's FY21 margin guidance given at the H1 stage leaves the door ajar for a downgrade " cost volatility and the timing of landing price actions create a higher than normal range of likely year end margin outcomes "
Investment case:
On sum of parts basis Unilever is twice as cheap as it was at the time of the Kraft Heinz bid in 2017, this might attract the attention of activists
There need to be moire urgency to unlock value and we think a demerger now needs to be considered
However it pans out, communication needs to be much better , in our view
zelf zit ik Long Nestlé en Danone, heb thans geen Unilever in de porto
voor Danone ben ik gestaffeld koper mocht het lager graviteren
Nestle is één van mijn zwaarste investeringen binnen de porto voor weging
Unilever, wacht af - mochten er activistische acties komen ( dan koop ik het ) zo niet zit ik met nestle , Danone en recent aangekocht Kraft goed in de sector.