Wessanen announced in a press release this morning that its US subsidiary ABC is expected to achieve higher than anticipated revenues andearnings growth in 2H11. Autonomous revenue growth is now expected to be well in excess of the 21% growth achieved in the first half of 2011. EBIT is expected to be in the range of US$ 17-19 million for the full year. Management expects further revenue and earnings growth in 2012, based on the strong increase in demand this year, the increased distribution of Daily's and ongoing expansion of our production capacity.
Wessanen's strategy is to focus on organic food in Europe with the clear vision to make its organic brands most desired in Europe. In light of ABC's strong performance the decision was made to postpone the divestment process. Wessanen believes that a divestment at this point in time would not unlock the full value of the business for shareholders.
The strong result of ABC is mostly attributable to Daily's - ABC's cocktail mixers brand - and in particular the ready-to-drink (RTD) pouches which are showing very strong growth. In addition, other Daily's products such as the bag-in-a-box and premixes are also performing well. Drivers of this performance are the development of the right packaging concepts for all channels, a change in the distribution strategy to also serve grocery chains and consistent execution.
Over the last two years Wessanen changed ABC management and the new team has done a great job in turning ABC around. Multiple processes in areas such as sales, supply chain, production and finance have improved drastically.
ABC has accumulated sizeable tax losses carried forward, for whichno deferred tax assets were recognized at year-end 2010, which can be used to be offset against taxable profits in the near future.
A conference call with Piet Hein Merckens (CEO) will take place today at 9:30am CET. The dial-in number is +31 (0)45 631 6902 (conference ID 44 72 649).
Our View:
We were positively surprised by the EBIT guidance for 2011 and beyond. For ABC, we were counting on an EBIT of € 3.6m or $ 5.2m for 2011. We’ve revised this upwards to $ 17.8m or € 12.6m implying a margin of 11.7% for 2011. Our EPS forecasts for 2011, 2012and 2013 have been revised upwards by respectively 53%, 44% and 33%. Our DCF based target price is revised upwards from € 3.5 to € 4.2 and our rating from Accumulate to Buy.