Wessanen has undergone a fundamental metamorphosis over the past two years and after two quarters of comforting results, it is now back on investors’ radar screens.
Between November2010 and August 2011, Delta Partners, LLC increased its stake in Wessanen from 16.33% to 20.07% and the share price has outperformed the AEX by 23% during the last three months.
Wessanen Europe Grocery posted excellent 1Q11 and 2Q11 results, with volumes up by respectively 6% and 4% and REBIT margin improving from 8.3% in 1H10 to 9.7% in 1H11. Wessanen Europe Health Food Stores (HFS) continues to struggle due to fierce competition especially in the Netherlands but steps are being taken to put this business back on the right track.
The group continues to streamline its activities through the disposal of non-core activities and the integration of the core businesses. The American Beverage Corporation should be sold during the coming year. We count on an EV of € 34m for this business. We anticipate that the Frozen Foods division will be sold too in due course given Wessanen’s focus on organic food. This business should fetch about € 25m.
Wessanen will be an attractive prey when its disposal program is complete because of its strong organic food brands including Zonnatura, Bjorg and Whole Earth, the group’s solid balance sheet and the bright outlook for the organic food market.
In 2010 European organic food consumption represented 2.6% (1.7% in the UK, 3.3% in Germany) of total food consumption in the countries where Wessanen is present. The share is rising however as organic food becomes a mainstream product that is sold not only in specialized health food stores but also supermarkets and general grocery outlets. Awareness and appreciation of organic food continue to grow despite recessionary fears. Supermarket chains are expanding their organic food offering in an effort to differentiate themselves, selling organic products on dedicated shelves and on the mainstream shelves. 2.02.12.22.22.214.171.124.83.0
The group’s net debt equalled € 39.1m at the end of 2Q11 implying gearing of 21% and a net debt/EBITDA ratio of 1.1x.
We arrive at a value of € 3.5/share based on the DCF method based on a WACC of 9.2%. We reiterate our Accumulate rating and € 3.5 target.