Verallia H1 Results

A little more than a week ago Verallia presented very good results and as usual above our always conservative estimates made when we wrote the company's thesis 8 months ago. Since then, the company has appreciated by 30%.

https://10baggernewsletter.substack.com/p/verallia

This has led to an increase in guidance for 2023. The previous guidance.

Previous Guidance for the year 2023:

Revenue Growth: > 20%

EBITDA: Approximately 1 B

NEW GUIDANCE for the year 2023:

Revenue Growth: > 20%

EBITDA: 1,1-1,25 B

H 1 Earnings:

Both margins and revenues have been better than expected, this is due to price increases as volume has decreased during H1. Prices were negotiated with higher inflation expectations so in the second half of the year they will have to lower prices, making it difficult for H2 to be as good as H1. On the other hand, part of this price decline should be offset by an increase in volume with management's expectations to end the year flat in terms of volume. Margins have also been higher than expected due to the hedging policy on electricity prices. I believe that a normalized margin would be around 28%. It should be remembered that in the medium term the company was aiming for a 28 % - 30 % EBITDA margin.

Expectations and valuation

For this year, the company has guaranteed that it will comply with the low end of the guidance, reaching the high end will depend on the recovery of volume and a selective price reduction. According to analysts' consensus, EBITDA is expected to reach 1173 million, slightly above the low end of the guidance. This would result in earnings per share of €4.49, which would leave the company trading at a forward P/E of 9.

We can expect a shareholder payout of at least 40% of the profit in dividends, as previously proposed, plus share buybacks, currently holding 4.31 % of the treasury shares. This would yield a dividend of approximately 4.5%. Verallia has relatively low debt levels, with a Net debt / ADJ EBITDA ratio of 1.3 LTM, which positions it favorably in the event of pursuing M&A opportunities or allocate more cash to the shareholders.

In the long term, the company aims to continue to grow between 4 and 6 % organically, combined with M&A.

Vidrala's most direct comparable is trading at a forward P/E of 11.5x, below its historical average of 15x. Remember that there was a generalized drop in profits and valuation in the indsutry due to the rise in energy prices. Taking as a conservative valuation range Vidrala's current depressed multiples and its 10-year average of 15x, our target price is between 51, 6 € and 67 €.

Disclaimer : This is not an investment recommendation. Everyone must make his own analysis. The author of the article holds a long position in Verallia shares.