Upfield - Smoothly sailing to a refinancing.
Dear All,
Please see our updated model on Upfield post the Q4 2023 results here.
Q4 2023 results were broadly in line with our expectations and projections. More importantly, though, the company has been tracking if not leapfrogging a very predictable path to recovery for some time now and we feel very comfortable with our projections. Rating agencies could also provide some upcoming catalysts which may be positive for bondholders.
Investment Considerations
- Given the strong results and outlook, we are going to keep our position despite the notes now trading in the mid-90s as the probability of a refinancing is very high (with ten points of upside from capital appreciation and coupon).
- Upfield confirmed on the call that cash generation will also grow in line with revenues and EBITDA leading to further deleveraging of the capital structure in 2024.
- Near term catalyst: The company is updating the rating agencies this month which may lead to an upgrade for the bonds this year. This would create a constructive environment for a refinancing of the notes later in the year.
Predictable Q4 2023 results and outlook
- The company’s 2023 revenue of €3.275 billion and EBITDA of €831 million was slightly below our estimates of revenues of €3.4 billion and EBITDA of €835 million which was offset by better-than-expected cash generation of €567 million.
- The Q4 2023 quarter was driven modest commodity deflation and favourable phasing of €35 millions of savings in the quarter offset by increased advertising and promotion expenses to support brands and innovations.
- Cash generation was stronger than expected to strong seasonality with Q4 being the strongest season. The business de-levered to 6.5x leverage (an improvement of 0.7x vs. Dec-22)
- Management also gave good visibility on hedging in the commodity market which bodes well for 2024 results.
- The company gave a strong outlook for 2024 with guidance for low single digit organic growth, growing volumes, EBITDA growing faster than revenues along with cash generation in line with EBITDA growth.
Happy to discuss.
Saahil
T: +44 203 192 0200
www.sarria.co.uk