Turnaround Program And Margin Gains Will Support Fair Long Term Outlook

Catalysts

About Anora Group Oyj

Anora Group Oyj is a Nordic wine, spirits and industrial products company focused on branded beverages, contract manufacturing and barley based industrial ingredients.

What are the underlying business or industry changes driving this perspective?

• Although the Fit, Fix and Focus turnaround program is beginning to lift gross margin and EBITDA, the dependency on executing multiple work streams over a three year horizon means any missteps in restructuring or efficiency projects could quickly erode the current margin gains and cap earnings growth.
• While premium own brands like Koskenkorva, Blossa and fast growing Swedish wine launches are benefiting from consumer trading up and flavor innovation, ongoing volume pressure in monopoly channels and lost partner business may offset this mix benefit and keep top line growth and operating leverage muted.
• Despite the stabilization of key input costs such as Finnish barley and the move to more disciplined revenue management, any renewed raw material or energy price inflation in a heavily taxed category would be difficult to fully reprice, threatening gross margin resilience and future EBITDA expansion.
• Although the SAP implementation and new reporting platform should ultimately improve transparency, control and working capital efficiency, execution risk around ERP go live could temporarily disrupt logistics, invoicing and inventory, weighing on near term cash flow and earnings quality.
• While regulatory shifts such as Denmark’s packaging tax reform favor producers with efficient bag in box capacity and more sustainable packaging, the ongoing weakness in filler and contract manufacturing volumes creates a risk that capacity is underutilized, limiting revenue recovery and constraining net margin improvement.

Assumptions

This narrative explores a more pessimistic perspective on Anora Group Oyj compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Anora Group Oyj's revenue will remain fairly flat over the next 3 years.
• The bearish analysts assume that profit margins will increase from 2.1% today to 4.8% in 3 years time.
• The bearish analysts expect earnings to reach €31.7 million (and earnings per share of €0.47) by about December 2028, up from €14.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 8.6x on those 2028 earnings, down from 17.7x today. This future PE is lower than the current PE for the FI Beverage industry at 14.5x.
• The bearish analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.79%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• If the Fit, Fix and Focus turnaround program continues to deliver broad based cost savings, gross margin gains and EBITDA growth across all segments, the market could re rate the stock upwards on improved earnings visibility and a structurally higher EBITDA margin.
• Sustained innovation success in core brands like Koskenkorva, Blossa and new Swedish wine launches, combined with Anora regaining and expanding market share in key monopoly markets, could restore top line growth and drive higher revenue and operating leverage than currently implied.
• The stabilization of key input costs such as Finnish barley, alongside structural supply chain efficiencies and SAP driven process improvements, could entrench a higher gross margin base, lifting long term net margins and free cash flow generation.
• Ongoing working capital optimization, inventory reductions and lower leverage, supported by strong liquidity reserves, may materially strengthen the balance sheet, reduce financial risk and justify a higher earnings multiple as debt to EBITDA improves.
• If the company successfully replaces lost partner and filler volumes with more profitable own brand and value added industrial sales, the mix shift could accelerate earnings growth beyond flat expectations, supporting a rising share price through stronger revenue quality and net profit.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Anora Group Oyj is €3.4, which represents up to two standard deviations below the consensus price target of €3.87. This valuation is based on what can be assumed as the expectations of Anora Group Oyj's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €4.7, and the most bearish reporting a price target of just €3.4.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be €667.1 million, earnings will come to €31.7 million, and it would be trading on a PE ratio of 8.6x, assuming you use a discount rate of 5.8%.
  
• Given the current share price of €3.66, the analyst price target of €3.4 is 7.6% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.