Research: Consumer
Nichols’ FY23 results showed good progress made as the Packaged business continued to drive growth through product innovation and geographic expansion. Inflationary pressures were largely mitigated and the benefits from the restructuring of the Out of Home (OoH) business are starting to come through, leading to improved profitability. Free cash flow generation was very strong in the year, resulting in an improved net cash position of £67.0m (vs £56.3m at end-FY22). Given the high levels of cash on the balance sheet, management is assessing capital allocation options, including continued investment in the business, returns to shareholders and M&A opportunities.
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Nichols |
Juicy profits and cash generation
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Consumer |
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12 March 2024 |
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Nichols’ FY23 results showed good progress made as the Packaged business continued to drive growth through product innovation and geographic expansion. Inflationary pressures were largely mitigated and the benefits from the restructuring of the Out of Home (OoH) business are starting to come through, leading to improved profitability. Free cash flow generation was very strong in the year, resulting in an improved net cash position of £67.0m (vs £56.3m at end-FY22). Given the high levels of cash on the balance sheet, management is assessing capital allocation options, including continued investment in the business, returns to shareholders and M&A opportunities.
Good progress in FY23
Nichols delivered robust revenue growth in a tough consumer environment, up 3.5% to £171m. Growth was driven by good progress in the Packaged business (+6.1%), which more than offset the decline in OoH (-3.4%) following the division’s restructuring. Despite ongoing inflationary pressures gross margin broadly held up at 42.3% (FY22: 43.1%). Adjusted PBT grew 8.7% to £27.2m given the improved profitability in both Packaged and OoH. Strong free cash flow generation of £20.9m (FY22: £14.6m) resulted in an improved net cash position. Due to the strong performance, management has proposed a final dividend of 15.6p, resulting in an increased total FY23 dividend of 28.2p (FY22: 27.7p).
Innovation to continue driving strategy
Nichols made good progress in FY23 in its growth strategy, which is focused on its four pillars: more from the core, thirst for new, fuel for growth and happier future. Achievements included securing a new distribution partner in the Ivory Coast, launching Vimto Energy in the fast-growing UK energy segment and initiating the business transformation programme (to drive efficiencies). In FY24, the focus is on expanding sales into new geographies in Africa to further develop production facilities, while also driving innovation in Vimto products in the UK and Middle East. Management potentially plans to utilise net cash to fund M&A opportunities, targeting growth segments such as functional or health focused drinks.
Valuation: International reach boosting valuation
Nichols trades at a premium of 11% and 14% on median consensus P/E multiples to its UK beverage producer peers, for FY24 and FY25 respectively. This, in our view, reflects its international reach in its growing markets of Africa and the Middle East, as well as its unleveraged balance sheet, unlike other peers.
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Consensus estimates
Source: Refinitiv (priced at 7 March 2024) |
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Research: Consumer
Inchcape’s (INCH’s) FY23 results highlighted strong revenue and margin progression, with 12% organic revenue growth and a 70bp uptick in adjusted operating margin, leading to 18% EPS growth. The Derco acquisition contributed its full first year, helping to boost profits despite margin compression in the Americas and Retail. INCH anticipates another year of growth in FY24, although with caution due to expected softness in certain markets, particularly Europe and Retail. INCH will continue its disciplined approach to capital allocation as it deleverages the balance sheet, and recently announced a strategic review of its UK Retail business.