There may be value in Anora's parts

Translation: Original comment published in Finnish on 6/21/2023 at 7:05 am.

Although Anora is a company that is clearly focused on the Nordic alcohol market, we feel its operations can also be valued on a segment basis. In this text, we discuss Anora’s sum of the parts valuation. Especially the Viva Wine Group listed in Sweden has very similar business to Anora’s Wine segment and provides a good basis for building the sum of the parts valuation.

Viva Wine Group in Sweden is very close to Anora’s Wine segment’s business

Viva Wine Group is a wine vendor listed in Sweden at the end of 2021. Last year, some 60% of its revenue came from Sweden, 20% in total from Finland and Norway, and 20% from online sales. Thus, the main market is the same as for Anora, where Sweden produced close on half of the Wine segment’s revenue. For Anora, the weight of Finland and Norway is somewhat higher than for Viva and it also has operations in Denmark, but no online business like Viva. The revenue of both is roughly EUR 350 million considering Globus wine acquired by Anora last year. The sales structure is also very similar, i.e., over half of the sales comes from importing and distributing wines of third parties but own wine brands also play an important role.

The graph shows Viva’s development in recent years. Revenue growth has been supported by acquisitions and increased demand due to the COVID pandemic, but organic growth before the pandemic in 2018-19 was also 10-15%. In terms of profitability, Viva has been better than Anora’s Wine segment at least in the last two years.

Anora’s sum of the parts valuation

We have made a sum of the parts valuation on Anora by assessing the value of each segment separately. As Anora reports the results of the segments at EBITDA level, we use EV/EBITDA ratios to build the valuation. For the Wine segment, due to Viva's similarities (and the lack of other comparable peers), we use Viva's valuation multiples, i.e., EV/EBITDA of some 9.5x for this year. The 2023 result is depressed by the weaker NOK and SEK both in Anora and Viva, which the companies should be able to compensate for over time with price increases.

Anora’s Spirit segment consists more clearly of brands owned by Anora and products produced by Anora than the Wine segment. These produce around 75% of the Spirits segment's revenue and we estimate that even a slightly larger share of the result. That is why we believe that the Spirit segment is better comparable to international alcoholic beverage giants, which are also found in our peer group for Anora. The size class of these companies (e.g. Brown-Forman, Pernod-Ricard) is, however, massively bigger than Anora, as the companies are worth tens of billions. These companies operate internationally with a large brand portfolio and we, therefore, believe their growth potential is better than Anora’s. On the other hand, Anora’s Nordic markets are well protected by monopoly chains and marketing restrictions, and Anora has a very strong market position here. These peers are valued with quite high multiples, with the median being 16-17x EV/EBITDA for 2023-24.

The EBIT and cash flow of the Anora Industrial segment is limited, although it plays a significant role in utilizing process by-products. However, we give this segment a moderate EV/EBITDA ratio of 6x. In addition, we value Anora’s small Group costs with a 10x multiple.

Valued with the above multiples and considering net debt, Anora’s value per share is about EUR 9.5. However, for the Spirits segment, we believe a discount relative to the peers would be justified. If we apply, e.g., a 25% discount (and thus an EV/EBITDA of 12x for Spirits), the sum of the parts falls to around EUR 7, which is still clearly above the current share price, but roughly in line with the potential we see in Anora with other valuation methods. If we deduct the estimated value of the Wine segment of close on EUR 300 million directly from the current EV, the share price indicates that the EV/EBITDA for the remaining operations is around 8x.

We believe that the sum of the parts would be relevant primarily in case of a takeover

We do not believe that Anora would split up the company, and we do not see it as a logical move. Instead, the sum of the parts calculation could be relevant if an international alcohol company would buy Anora. In this case, the buyer could be particularly interested in the Nordic brands of the Spirits segment, which have a strong market position on the home market and which the buyer could seek to distribute internationally through its own channels. In this case, we find it possible that separating the Wine segment to an independent company or selling it to another party could be possible.

Anora’s main owners are former Arcus’ main owner, the Norwegian investment company Canica, and former Altia’s main owner Solidium, who together control over 40% of Anora. We believe that selling the company is possible in principle if a sufficiently attractive price is offered. On the other hand, the company published its strategy only at the end of last year and its targets as the combined Anora stretch until 2030. The implementation of synergies from the merger is also partly ongoing. Thus, we find it likely that the owners may want to monitor the development of Anora for a few years, even if potential buyers were available.