COMPANY NEWS & UPDATES
United Malt Group Limited ( UMG )
Accumulate Valuation $ 4.50
Earnings Forecast
Yr to Sept |
2021A |
2022F |
2023F |
|
Sales Revenue
($ M )
|
1,235.0 1,419.2 |
1,594.8 |
|
Reported
Profit ($ M )
|
34.0 |
63.6 |
78.0 |
EPS ( c ) |
11.3 |
21.2 |
26.1 |
Div ( c ) |
5.5 |
12.0 |
15.0 |
P / E ( x ) |
37.7 |
17.6 |
14.4 |
Yield (%) |
1.3 |
3.2 |
4.0 |
Franking (%) |
0.0 |
0.0 |
0.0 |
|
EPS Growth
(%)
|
-46.6 |
87.7 |
22.7 |
* Profit & EPS adjusted for options , goodwill , notional earnings and nonrecurring items .
Conditions are Improving
United Malt currently screens undervalued compared with our unchanged $ 4.50 valuation . Sales to the higher-margin craft segment have been significantly squeezed since the beginning of the pandemic but conditions are improving as restrictions ease in key markets . Although UMG lacks a competitive advantage the company is the fourthlargest global malt processor and works with some of the world ' s largest breweries and distillers as well as fast-growing craft producers . We expect UMG to enjoy a stable earnings stream as end-markets normalise , buoyed by organic growth opportunities .
Getting consumers back to drinking at pubs will prove crucial for UMG ' s profitability . Consumption at pubs , bars , and other out-of-home locations was heavily impacted in the wake of COVID-19 restrictions . Indeed , April 2020 spending at " food services and drinking places " plummeted by 53 % compared to the prior corresponding period , or pcp , per U . S . Census Bureau data . We estimate the impact on beer consumption was more pronounced . When subtracting restaurant spend from the above Census data , effectively creating a proxy for draught beer consumption , spending dropped 72 %. By contrast , spending on " beer , wine , and liquor stores " ( that is , takeaway alcohol ) lifted 13 % to plug some of that gap .
We think this shift in spending to athome consumption plays into the hands of bigger players at the expense of the craft brewers . While major brewers are important to UMG , effectively more predictable baseload customers to cover the high fixed costs from running its malting facilities , craft brewers are a higher margin customer . Pre-pandemic , craft brewers typically accounted for around a third of UMG ' s revenue , but about half of earnings .
But near-term conditions are improving . U . S . data shows out-ofhome consumption bounces back quickly as restrictions ease . Spending at food services and drinking places in the U . S . broadly returned to trend levels by mid-calendar 2021 . This coincided with most restrictions in major U . S . states easing ahead of the northern hemisphere summer . However , the impact of the more recent outbreak of the omicron variant appears to have a bigger impact on early calendar 2022 than when restaurant data is included , creating an effective " shadow lockdown " as consumers stay home in an abundance of caution . But we think this downturn will prove a short-term blip as the northern hemisphere summer returns and society learns to live with COVID-19 as an endemic disease .
With most major restrictions now eased in UMG ' s major U . S ., U . K ., and Australian markets we think the near-term outlook is bright . Despite the difficult year for craft brewers in 2020 , we forecast a significantly improved FY22 , with EBITDA of $ 173 million , marginally below FY19 levels . We are not concerned with the spiking price of barley , due to a poor northern-hemisphere crop production , and more recently concerns around the conflict in Ukraine . UMG has typically been able to pass through increased barley costs to customers , and we expect this risk to be short-term in nature .
Longer-term , we forecast a five-year EBITDA CAGR of 13 %, reflecting a recovery from trough earnings in FY21 , low-single-digit volume growth ( including ramping up additional capacity in Scotland ), continued high capacity utilisation above 95 %, and greater sales of specialty malts to craft brewers and single-malt Scotch distillers . We expect malt demand growth to remain supportive for UMG ' s capacity utilisation in its major geographies . Although we anticipate craft beer consumption , a key driver for rising global malt demand , continuing to rise as a proportion of overall beer in UMG ' s primary markets , we expect the growth rate to slow , reflecting an already high number of craft brewers globally and flat overall beer consumption trends .
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