BETA Sec: Kri Kri Target price €2,10) Strong FY15 underlying growth, upbeat outlook for 2016

15.04.2016 15:21
Thomson Reuters – 2016 Extel Survey

 

Kri Kri (KRI GA, OW, Target Price EUR 2.1)

 

FY/Q4 2015a group results (EURm, December 31)

 

FY14a FY15a FY yoy FY15e (a)vs(e) 4Q14a 4Q15a Q4 yoy 4Q15e (a)vs(e)
Geographic Greece sales 68.19 54.91 -19% 55.14 0% 8.28 7.81 -6% 8.04 -3%
region    % of group sales 88.4% 82.0%   81.6%   81.6% 75.6%   73.4%  
One-off sales 14.20 0.00 0.00   0.33 0.00   0.00  
Recurring sales 53.99 54.91 2% 55.14 0% 7.95 7.81 -2% 8.04 -3%
   % of group sales 85.8% 82.0%   81.6%   80.9% 75.6%   73.4%  
International sales 8.96 12.04 34% 12.43 -3% 1.87 2.52 35% 2.92 -13%
   % of group sales 11.6% 18.0%   18.4%   18.4% 0.0%   26.6%  
Business Ice Cream 23.04 21.32 -7% 21.22 0% (0.50) (0.29) -41% (0.39) -25%
segment    % of group sales 29.9% 31.8%   31.4%   -4.9% -2.8%   -3.6%  
Yogurt 39.91 45.43 14% 46.09 -1% 10.31 10.63 3% 11.29 -6%
   % of group sales 51.7% 67.8%   68.2%   101.6% 102.8%   103.1%  
Other 14.20 0.21 -99% 0.26 -21% 0.33 0.00   0.06  
   % of group sales 18.4% 0.3%   0.4%   3.3% 0.0%   0.5%  
Kri Kri Sales 77.15 66.95 -13% 67.57 -1% 10.15 10.34 2% 10.96 -6%
One-off sales 14.20 0.00   0.00   0.33     0.00  
  Recurring sales 62.95 66.95 6% 67.57 -1% 9.82 10.34 5% 10.96 -6%
  COGS (60.32) (44.58) -26% (43.95) 1% (9.37) (9.33) 0% (8.71) 7%
  Gross Profit 16.83 22.37 33% 23.62 -5% 0.78 1.00 28% 2.25 -55%
     Gross margin 21.8% 33.4%   35.0%   7.7% 9.7%   20.5%  
  Other oper. income 2.32 0.88 -62% (0.21)   1.09 0.94 -14% (0.15) -741%
                       
  R&D Expenses (0.12) (0.10) -19%     (0.12) (0.10) -19%    
  % of Sales 0.2% 0.1%   0.0%   1.2% 0.9%      
  Administrative Exp. (1.92) (2.20) 15% (2.61) -16% (0.46) (0.35) -25% (0.76) -54%
  % of Sales 2.5% 3.3%   3.9%   4.6% 3.4%   6.9%  
  Selling Expenses (10.42) (13.10) 26% (10.87) 21% (3.17) (5.51) 74% (3.28) 68%
  % of Sales 13.5% 19.6%   16.1%   31.2% 53.3%   29.9%  
  Clean Selling Exp. (10.42) (11.38) 9% (10.87) 5% (3.17) (3.79) 20% (3.28) 16%
  % of Sales 13.5% 17.0%   16.1%   31.2% 36.7%   29.9%  
  Total S&A Exp. (12.46) (15.39) 24% (13.48) 14% (3.75) (5.95) 59% (4.04) 47%
  % of Sales 16.1% 23.0%   19.9%   36.9% 57.6%   36.9%  
  Clean Total S&A Exp. (12.46) (13.67) 10% (13.48) 1% (3.75) (4.24) 13% (4.04) 5%
  % of Sales 16.1% 20.4%   19.9%   36.9% 41.0%   36.9%  
                     
  EBITDA 6.69 7.86 18% 9.93 -21% (1.88) (4.01) 114% (1.94) 107%
     EBITDA margin 10.6% 11.7%   14.7%            
  Clean EBITDA 5.71 9.57 68% 9.93 -4% (1.88) (2.29) 22% (1.94) 18%
     EBITDA margin 7.4% 14.3%   14.7%            
Depreciation (2.13) (2.99) 41% (3.32) -10% (0.68) (0.74) 9% (1.07) -31%
EBIT 4.56 4.87 7% 6.61 -26% (2.56) (4.76) 86% (3.01) 58%
   EBIT margin 5.9% 7.3%   9.8%            
Net Financials 0.10 (0.57)   (0.57) 1% 0.01 (0.18)   (0.18)  
EBT 4.66 4.29 -8% 6.04 -29% (2.55) (4.94) 94% (3.19) 55%
   EBT margin 6.0% 6.4%   8.9%            
Clean EBT 3.68 6.01 63% 6.04 -1% (2.55) (3.23) 27% (3.19) 1%
   EBT margin 4.8% 9.0%   8.9%            
Minorities 0.00 0.00   0.01   0.00 0.00   0.01  
Taxation (1.09) (0.45) -58% (1.61) -72% (0.26) 1.02   (0.14)  
Effective Tax Rate 23.3% 10.5%   26.6%     20.6%      
Net Profits 3.57 3.84 8% 4.45 -14% (2.81) (3.92) 40% (3.31) 18%
   Net Margin 4.6% 5.7%   6.6%          
Clean Net Profits 2.88 5.06 76% 4.45 14% (2.81) (2.71) -4% (3.31) -18%
   Net Margin 3.7% 7.6%   6.6%            

 

Key results features:

·         FY group top-line dropped 13% y-o-y to EUR66.95m on unfavourable y-o-y comparisons, as 2014 figures were bolstered by EUR14.20m one-off income (arising from sales of production materials to third parties for yogurt manufacturing linked to Kri Kri plant fire).

·         On a recurring basis, thus, Kri Kri 2015 group sales rose 6% y-o-y, thanks to upbeat yogurt business (home & abroad), more than offsetting ice-cream downtrend in Greece (largely due VAT hike to 23% from 13% previously) .

·         Tellingly, star performer yogurt division grew by 14% y-o-y to EUR45.43m, making up 67.8% of group total.

·         Ice-cream sales, in turn, fell 7% y-o-y to EUR21.32m, burdened also by aggressive price discount initiatives seeking to boost local demand (protect market share) amid growing competition.

·         Yogurt’s rapid expansion in Western Europe acted as key growth engine, driving international sales 34% y-o-y higher to EUR12.04m. This solid top-line growth mirrors new private label deals in UK (Tesco, Marks & Spencer), Belgium and Italy.

·         Hit by ice-cream downbeat momentum, Kri Kri domestic recurring sales advanced 2% y-o-y to EUR54.91m in 2015, down 19% at a reported level. In all, foreign markets contribution to 2015 sales rose to 18.0% from 11.6% a year earlier, with Greece generating 82% of group total against 88.4% in 2014.

·         Recall that we witnessed  sharp 2014 gross margin erosion (-966bps to 22.8%) following a fire that put yogurt manufacture on hold, forcing Kri Kri to outsource production.

·         Thanks to its state of the art, brand new yogurt plant, divisional gross margin rebounded strongly in 2015, jumping to 30.8% vs 16.7% in the previous year.

·         This, in turn, triggered FY 2015 group gross margin boost to 33.4% (vs 21.8% in 2014 and 32.4% in 2013).

·         On the other hand, 2015 ice-cream gross margin edged 19bps higher to 41.7%, despite heavy price discounts.

·         Further down the P&L, FY group EBITDA and EBIT posted increases of 18% and 7% y-o-y to EUR7.86m and EUR4.87m (depreciation +41% to EUR2.99m), respectively.

·         Note that 2014 group EBITDA were bolstered by EUR976,217 insurance payment linked to Kri Kri plant fire. In contrast, provisions of EUR1.72m (booked at the selling exp. level) hit hard at Kri Kri 2015 group EBITDA.

·         Thus, adjusting for abovementioned one-off items, Kri Kri group EBITDA climbed 68% y-o-y to EUR9.57m in 2015; normalised EBIT up 84% y-o-y to EUR6.58m.

·         Held back by EUR0.57m net financial expenses (vs EUR0.10m financial income in 2014), FY 2015 reported EBT declined 8% y-o-y to EUR4.29m, rising, however, 63% y-o-y to EUR6.01m on a recurring basis.

·         Ex-one offs, clean net earnings jumped 76% y-o-y to EUR5.06m in 2015, up by a much lesser 8% to EUR3.84m at a reported level.

·         End-2015 net debt shaped at EUR7.4m from EUR8.3m in 2014, on the back of EUR2.9m FCF generation.

·         On a final note, Kri Kri will distribute a DPS of EUR0.06 for FY 2015 (also EUR0.06 a year ago), implying a yield of 3.8% (51.6% payout ratio).

 

Strong 2016e outlook

We look for 2016e group sales, EBITDA, EBT and net earnings posting growths of 5%, 39%, 64% and 39% y-o-y to EUR70.02m, EUR10.89m, EUR7.01m and EUR5.34m, respectively.

 

Domestic sales are seen 1.9% up to EUR55.96m, while international operations should grow by 17% y-o-y to EUR14.06m, accounting for 20.1% of total in 2016e.

 

In terms of business segments, we expect yogurt sales to rise 8% y-o-y to EUR48.88m, representing 69.8% of group total. Ice-cream negative sales growth momentum should slowdown to -2% y-o-y in 2016e (at EUR20.94m) compared with -7% last year.

 

Adjusting for 2015 provisions one-offs, we see this year’s group EBITDA, EBT and net earnings up 14%, 17%, and 6% y-o-y, respectively.

 

End-December 2016e net debt should fall to EUR5.3m, on our estimates, reflecting upbeat EPS momentum and strong FCF (EUR4.3m)

 

DCF model

We value Kri Kri using a 3-stage DCF model, COE of 11% and sector asset beta of 1.00. We use explicit forecasts to 2018e, after which cash flows are modelled on a semi-explicit basis for a 10-year period to 2028e, followed by a 5-year fade period.

 

Our DCF model returns a target price of EUR2.1 per share, implying a 32% upside from current levels, which is above BETA’s Neutral band. Thereby, we reiterate our Overweight recommendation.

 

The stock appears attractively priced trading 9.8x its 2016e EPS and 5.3x EV/EBITDA. Besides attractive valuation, we like Kri Kri also for its robust growth potential, solid balance sheet and strong management.

 

 

 

Kind regards,

 

 

Spiros Tsangalakis

Senior Equity Analyst

BETA Securities S.A.

29 Alexandras Ave.

GR – 11473

Athens, Greece





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