On Tuesday, BofA Securities adjusted its financial outlook for Royal Unibrew (CSE:RBREW), a leading beverage company. Analysts at the firm have lowered the price target for Royal Unibrew shares from DKK600.00 to DKK540.00, while maintaining a Neutral rating on the stock.
The revision follows Royal Unibrew's recovery after two challenging years, with the company expected to achieve approximately 6.5% organic sales growth in 2024. This performance is anticipated to surpass that of other brewers and most staple goods providers. Additionally, an estimated 17% organic growth in EBIT (earnings before interest and taxes) for 2024 was projected by BofA Securities.
Looking ahead to 2025, Royal Unibrew is poised for continued strength, with a projected 9% organic EBIT growth, aligning with consensus estimates and slightly exceeding its mid-term target of 6-8%. This growth is believed to be supported by stable cost of goods sold per hectoliter, enhanced efficiency efforts, and further synergies from the integration of Vrumona in Belgium and benefits from the joint SAP platform in Norway.
The company's balance sheet has improved, with leverage ratios expected to fall below the 2.5 times target, reaching an estimated 2.1 times by December 2024. This financial position could provide Royal Unibrew with opportunities for strategic acquisitions, such as the Nordic spirits brands from Pernod, expected to be finalized in the first half of 2025, and potential future buybacks, which are predicted to resume in 2026.
Despite the positive outlook, BofA Securities cautions that the current valuation of Royal Unibrew, trading at around 16 times the 12-month forward price-to-earnings ratio, is consistent with European staples and carries a significant premium compared to other brewers. This assessment suggests that there may be limited potential for an upward re-rating of the stock, leading to the decision to maintain a neutral position.
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