Translation: Original published in Finnish on 11/8/2024 at 8:18 am EET

Anora’s Q3 result was weak and the company repeated the full-year guidance it cut in October, which indicates that the result will remain at last year’s weak level. We lowered our 2024-25 forecasts and our target price to EUR 3.4 (was EUR 3.8). Considering the weak growth outlook and the low return on capital, we feel the stock's expected return remains subdued. We reiterate our Reduce recommendation.

The Q3 result was even weaker than expected

Anora’s Q3 revenue decreased by 6% y-o-y, more than we expected. Revenue decreased in all segments, as revenue from beverage sales (Wine and Spirits segments) decreased more than we expected. Q3’s adj. EBITDA (15.9 MEUR) was clearly below the comparison period (20.2) and the forecasts (17.8), although they had naturally been cut after the October profit warning. Like in revenue, the  weakness came from the beverage segments.

The guidance downgraded in October remains unchanged, forecasts cut further

Anora expects adj. EBITDA to be 65-70 MEUR in 2024, i.e. around the 2023 level (68 MEUR). For January-September, the company has 40 MEUR in adjusted EBITDA, 1 MEUR less than in the comparison period. With the weak Q3, we cut our adj. EBITDA forecast a bit to 66.5 MEUR, which assumes that the adj. EBITDA of Q4 is slightly below the level of the comparison period. Q4 is Anora’s most important quarter due to the Christmas season, and its volume development also has a major impact on the guidance for the whole year. Anora commented that its earnings guidance is based on a smaller but negative volume/revenue development than in Q3. We also see a risk for a weaker volume development than Anora’s and our current assumptions, which would impact the company’s result quite directly and could push the result below the current guidance range. We also cut our 2025 forecasts, with longer-term forecasts (which we downgraded clearly after the October profit warning) largely unchanged.

Anora has potential for better, but the performance has failed expectations for a long time

Although we believe that the profitability of the Danish wine business (Globus Wine) can be improved in the coming years and consumer demand is expected to recover next year, we do not believe Anora can reach clearly higher margins. This is partly due to the sluggish growth outlook for the alcohol market (and the risk of even further market decline) and, in our view, the company's limited ability to significantly reduce its costs. At least in wines, the main competitor Viva Wine Group has also been systematically capturing market share for years, while Anora has fared less well.

Weak fundamentals and valuation fail to attract despite earnings improvement potential

Anora's P/E of 13x this year is above our acceptable multiples, but next year's 10x is already at a neutral level, although still not particularly attractive in our view, given the weak growth potential and returns on capital close to the required return. With our forecasts, the dividend yield is almost 7%, but we also see a risk of a dividend cut due to poor earnings and balance sheet conditions. We also note that the company has missed both its own guidance and our forecasts in recent years and its performance is sensitive to, among other things, volume developments and changes in raw material prices. The usefulness of EV ratios is weakened by lease liabilities and off-balance sheet sales of receivables.