Research Notes
Wimm-Bill-Dann Foods: flagship of the consumer market
| 13.01.09 |
Russian dairy market leader, Wimm-Bill-Dann Foods (WBD), reported its 9M 2008 performance on December 18. The released operating results generally met market expectations: however, we have revised our estimated financial indices for WBD due to a substantial slowdown in sales growth at the company, a persistent rally in raw material prices, general downbeat trends on the Russian consumer market as consumer demand shifts in favor of cheaper foods, and changes in our macroeconomic projections.
In line with our updated valuation model for the company, based on its nine-month financials and changed macroeconomic conditions, we have downgraded our estimate of the fair value of WBD to USD 34.6 per share as of year-end 2009. In view of a steep fall in quotes for WBD shares and their strong upside potential, put at 194% to the current stock valuations, we have retained our BUY recommendation on WBD shares.
- Wimm-Bill-Dann reported a 25% slowdown in revenue growth, primarily blamed on a downturn in sales volumes on the milk market, which is a key segment for the company. We believe that the general market slowdown will adversely affect WBD sales, and expect the company to regain its sales growth rates no sooner than 2010.
- We believe that diminishing customer purchasing power at the high end of the dairy market, where the company had largely focused on carving out its market niche, will continue to eat into profit margins for the next two years.
- The robust 9M financials posted by the company coincided with our expectations and affirmed Wimm-Bill-Dann’s strong financial position. The company has low leverage, as is evidenced by a net debt/EBITDA multiple at about 1.5, and USD 137 million in cash assets on its books, which, if necessary, could be tapped to redeem bonds in 1H 2009.
- Despite the significant downgrade of our estimates for growth in the company’s financial indices and profit margins, we remain upbeat on its long-term growth prospects. Having seen over 85% shaved off its market cap in 2008, WBD still holds much more investment appeal than its foreign peers. The company has a 2009 P/E ratio of 3.7 and a 2009 EV/EBITDA ratio of 3.2, compared to corresponding ratios of 15.6 and 8.6 for its foreign-based peers.
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Sectors: Consumer, FoodCompany: Wimm-Bill-Dann Food