Expanding Operations and Revised Valuation: HOLD Recommendation
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Ever-expanding scale of operations
We increase our FV from PLN 4.15 to PLN 4.54 per share and downgrade our recommendation from BUY to HOLD, due to recent stock price performance. The company has reported revenues of PLN 159m in 5M23 (+21% y/y), supported by an increase in volumes. SFD has recently announced the launch of its Hummy brand (quick meals), as well as plans to continue development of its activity in foreign markets (with a new market still this year).
As a result, we expect the company to maintain growth of its top line with 2022-25E CAGR at around 17%. We find the lower cost of materials and freight supportive for gross margin; however, due to a competitive environment, we assume stabilization of this margin at comparable levels in the coming years.
Given launch of the new product, we assume a comparable EBITDA margin this year, while in the following years operating leverage should support improvement in profitability. We trim our EBITDA forecasts in 2023-24E on higher operating costs and increase it in 2025E and afterwards assuming higher growth rates of revenues (2022-25E CAGR of EBITDA at 31%).
Finally, we expect SFD to maintain its dividend policy (DPS PLN 0.10 recommended from 2022 results) and assume a DPS of PLN 0.13 in 2024E. 2022-25E CAGR of revenues at 17%. SFD reporte revenues of PLN 159m in 5M23 (+21% y/y). The company also announced the launch of its own brand Hummy (quick meals), which we expect to gradually support sales in the coming quarters. SFD also maintains its plan to develop its activity in foreign markets (own platforms and marketplaces) and plans to enter a new market already this year.
Given the launch of a new product line, we increase our revenues forecasts by 1% in 2024E and 3% in 2025E (our forecasts imply 2022-25E CAGR of 17%). We point out that our forecasts still remain below the company’s target of around PLN 600m in 2025. Stable EBITDA margin in 2023E and improvement afterwards. SFD reported improvement of its EBITDA margin in 1Q23 by 1.5pp y/y; however, we point to strong sales (+37% y/y in 1Q23) that supported operating leverage.
At the same time, we expect inflationary pressure on operating costs to remain, while the launch of new products and entry into new foreign market may place additional pressure on profitability in the short term. As a result, we trim our EBITDA forecast by 9% to PLN 24.4m in 2023E (margin up by 0.1pp y/y to 6.3%), while expected higher growth rates in revenues should translate to improvement of margins in the following years, to 8.6% in 2025E.
Dividends maintained despite additional capex ahead. During the recent afterresults conference, the management pointed out that it currently is searching for a landplot for new logistics center. We assume development to start end-2024 or beginning-2025 with capex of around PLN 40m. Nevertheless, we assume that SFD will maintain dividend payments and we expect a DPS of PLN 0.13 in 2024E and PLN 0.18 in 2025E.
