Danone: Winning Where The Company Is

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Last week, Danone (OTCQX:DANOY,OTCQX:GPDNF) reported its Q4 and FY 2022 results. In 2022, we should mention that Danone unveiled a caller strategical scheme pinch nan intent to link sustainable profitable maturation pinch value creation. As a reminder, successful nan year, location was a caller CEO assignment and present astatine nan Lab, we do judge that Danone is successful amended hands nowadays; however, we still struggle to find impervious points for an net recovery. Before commenting connected nan quarterly update, our neutral standing was based connected nan following: 1) a alteration successful nan measurement pinch hypermarkets disputes and SKU rationalization; 2) its Russian division pinch a antagonistic one-off of almost €1 billion; and 3) a aggregate successful statement pinch Danone's humanities valuation. Looking astatine nan past 2 months, nan company's banal value accrued (as expected) - you can cheque our article called: A Better Than Feared Quarter; however, successful retrospect, pinch a 12 months ground view, our neutral standing proved to beryllium nan correct one.

Mare Evidence Lab's erstwhile publication

There are a fewer pieces of affirmative news to recap arsenic good arsenic antagonistic cardinal takeaways to report:

1. (+) Danone's marketplace stock is improving successful North America, China, and Oceania. In Europe, results were much mixed, pinch EDP capacity contrasted. There was bully and balanced maturation successful Italy and France, while successful nan Rest of nan World, EDP output declined and was partially offset by Danone's precocious macromolecule offerings. Water and much importantly, specialized nutrition saw broad-based contributions from aesculapian nutrition and babe aesculapian look solutions aliases IMF;
2. (+) Looking astatine nan GEO sales, IMF China reported coagulated maturation pinch a positive 60 ground points of stock gains. North America accrued by much than 8% successful like-for-like turnover pinch a +0.5% volume/mix and besides 20 ground points of marketplace stock gains. H1 margins were heavy impacted by earthy worldly inflationary unit and proviso challenges, but H2 sequentially improved pinch pricing ramping up (and we dream for higher productivity);
3. (+) Danone is streamlining its existent portfolio and is impacting its short-term volumes. During nan Q&A expert call, nan CEO emphasized that astir 50% of nan diminution successful European volumes was nan company's ain decisions (namely SKU rationalization) to trim and suspend EDP and Waters deliveries. For instance, successful Spain wherever Danone went from 10+ brands to five;
4. All nan position released was based connected "WINNING WHERE WE ARE" and we dream that pinch a clear strategy of portfolio rotation, Danone will beryllium backmost to a sustainable net maturation story;
5. (-) In nan mind time, nan separator from operations was down by -159 ground points and nan 3.6% EPS maturation was chiefly led by favorable rate development/other effects;
6. (-) In 2022, Danone's FCF reached €2.12 cardinal and was down from €2.48billion connected a yearly basis, reflecting a alteration successful halfway operating rate (Fig 1);
7. (+) The company's financial indebtedness decreased by €0.4 cardinal and Danone announced a DPS of €2.00 up by +3.1% compared to past year. Net debt/EBITDA reached 2.5x pinch a RoIC of 8.9% (Fig 2).

Danone Q4 Financials successful a Snap

(Fig 1)

Danone 2023 Financials successful a Snap

(Fig 2)

Conclusion and Valuation

In 2023, starting pinch nan CEO's words, Danone "will prosecute its transformation, and further put successful brands, products, and capabilities while delivering successful statement pinch nan mid-term guidance defined past year". The CEO is affirmative that nan existent twelvemonth will accelerate Danone's translator to profitable growth. Here astatine nan Lab, we are assured that nan institution will execute its precocious half of nan 3-5% like-for-like top-line income maturation scope and connected nan margin, forecasting a little ostentation rate, nan institution will use from carry-over pricing wherever necessary. The Danone first semester will astir apt align pinch Q4, while H2 is expected to beryllium a sequential betterment (Fig 2). Portfolio rotation is ongoing (Fig 4) and nan institution will dispose of little maturation areas and margins, which will positively impact nan group, while nan institution is investing successful plant-based capabilities and Chinese-specialized nutrition. Regarding nan valuation, we judge that Danone is reasonably priced in. Valuing nan French integrated subordinate pinch a 16x Price Earning, we derived a €54 banal value ($11 successful ADR), and truthful we confirmed our neutral standing target.

Danone estimates

(Fig 3)

Danone Portfolio Rotation

(Fig 4)

Editor's Note: This article discusses 1 aliases much securities that do not waste and acquisition connected a awesome U.S. exchange. Please beryllium alert of nan risks associated pinch these stocks.

Buy-side hedge professionals conducting fundamental, income oriented, agelong word study crossed sectors globally successful developed markets. Please sprout america a connection aliases time off a remark to talk ideas.DISCLOSURE: All of our articles are a matter of opinion, informed arsenic they mightiness be, and must beryllium treated arsenic such. We return nary work for your investments but wish you champion of luck.