Our research team at Calamatta Cuschieri has recently conducted an equity valuation analysis on Simonds Farsons Cisk plc (“SFC” or “Group”) with a “Hold” recommendation and a one-year price target of €11.66, implying a capital upside of 1.4 per cent to the current price of €11.50 as at the date of this writing.
SFC is engaged in the brewing, production, sale and distribution of branded beers and beverages, the importation, wholesale and retail of food and beverages, including wines and spirits, and the operation of franchised food retailing establishments. During H1 2020 (year-end January 31, 2019), SFC continued with the restoration and rehabilitation project of the Farsons Old Brewhouse, which is expected to cost in the region of €10 million and scheduled to be completed during Q1 2021. As at July 19, the Group also invested in a more environmentally friendly car and truck fleet, together with additional investment in energy-efficient plant.
During H1 2020, revenue increased by four per cent in comparison to the previous corresponding period, resulting in an increase in turnover of two per cent to €101.8 million as per 2020 LTM results. This increase is mainly attributable to an improvement in revenue generation across all SFC’s operating segments. As in the case of the previous financial periods, the ‘brewing, production and sale of beer and branded beverages’ remained the largest contributor towards the Group’s revenue (54 per cent).
We expect the Group’s overall revenue to amount to €103.7 million during FY2020. Thereafter, we expect revenue to increase by three per cent on a yearly basis, in line with GDP growth. As per H1 2020, cost of goods sold increased by three per cent to €56.5 million, in line with the increase in revenue registered during H1 2020.
We expect cost of sales to marginally increase, reflecting the increase in revenue which is anticipated to be generated by the Group moving forward. Selling and distribution costs together with administrative expenses incurred during H1 2020 collectively decreased by 8.1 per cent over H1 2019. Such decline is mainly attributable to several efficiency oriented measures implemented by the Group over recent years. We expect the latter to collectively amount to €22.7 million during FY 2020.
EBITDA for H1 2020 amounted to €12.3 million, implying an improvement of 10.8 per cent or €1.2 million over H1 2019. The uplift during this period arose from the improved results and cash flow together with the impact of the implementation of IFRS 16. Excluding the impact of IFRS 16, the Group attained a positive improvement of 5.8 per cent over the previous first half of the year.
We anticipate EBITDA to further improve to €23.9 million during FY2020. Moreover, net profit increased from €15.1 million in FY 2019 to €15.4 million as per 2020 LTM, translating into an EPS of €0.504 in 2018 compared to an EPS of €0.514 as per LTM results. We expect SFC’s net profit to remain at this level and amount to €15.2 million during FY 2020.
The current P/E level (22.4x) at which the Group is trading at, is considered to be relatively attractive in comparison to international industry peers. In arriving at our price target, we utilised a P/E ratio of 23x, in which we deem to be in line with the foreign industry average, therefore we expect the share price to reflect such reality moving forward. This, coupled with the fact that SFC is considered as a defensive stock, solidifies our Hold recommendation given the strong demand we are seeing for this sector.
The Group’s continuous persistence to enhance its overall operational efficiency is in line with SFC’s vision to also grow its business internationally, with the aim to achieve a greater regional presence in the food and beverages sectors.
The Group is continuing to invest heavily within the food and beverage industry in Malta, which should keep momentum going in the right direction. Albeit we believe that the share price currently reflects all the economic expectations of the Group and is trading at fair value. Upon taking the above factors into consideration, we rate the shares a Hold.
Disclaimer: This article was issued by Andrew Fenech, research analyst at Calamatta Cuschieri. For more information visit www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Analyst views to buy, sell or hold on particular stocks or instruments are related to the stock/instrument being reviewed and are not to be treated as personal recommendations to investors, which are only issued following suitability assessment.
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