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ISEQ steady-Danone examined

Tuesday, February 19 09:22:38

The ISEQ is steady this morning at 3,668, up 3 points as European markets edge slightly higher on Danone's performance and prospects.

Danone is examined today by NCB Stockbrokers:

Danone reported FY12 results this morning. Sales increased 5.4pc like-for-like in FY12 and operating income increased 1.8pc, resulting in a 50bps decline in operating margin to 14.2pc. Volumes increased 2.3pc in FY12 and price/mix increased 3.1pc . Analysis: Dairy volumes were up 0.4pc in Q4; an improvement from the -0.2pc rate for 2012. Volumes declined in Europe, as expected, with the company highlighting poor consumer demand in Southern Europe. This was offset by robust volume growth in Latin American and Africa-Middle East.

Very strong growth in Baby Nutrition continued, posting +12.1pc growth in Q4. This consisted of +6.1pc volume and +6.0pc price/mix. Sales increased in all regions with China particularly strong. Medical Nutrition also performed well with lfl sales up 5.5pc yoy.

Conclusion & Action: On outlook, Danone expects Europe to stay negative and the rest of the world to remain favourable. It expects moderate growth in raw material prices following a 6pc increase in 2012. It targets +5pc lfl sales growth and a decline in operating margin of 30 to 50bps.

Glanbia's Dairy Ingredients business (c.4-6pc of Group EBITA) exports some of its production to Africa and Central America. Strong baby nutrition growth is also positive for Glanbia, which generates c.10-15pc of EBITA from the production of vitamin and mineral pre-mixes, mainly for baby nutrition. Danone is a significant customer of Kerry Group so continued growth in volumes is a positive, as is forecast positive lfl growth in 2013. Glanbia trades on c.12.0x FY13E EV/EBITDA and c.14.6x P/E. Kerry Group trades on c.11.4x FY13E EV/EBITDA and c.15.8x P/E according to NCB Stockbrokers.