H1 Profit Ahead for JDE Peet's; Guidance Confirmed; Shares Offer Value

JDE Peet's reported half-year 2021 results with organic growth up 4.2% (up 4.4% for company-compiled consensus), driven by in-home market momentum (up 4.9%, e-commerce up 30%), and particularly the single-serve and bean markets, which grew double digits. Within this, volume was up 3.7% with price contributing a positive 0.4%. Despite an expected heavier reinvestment in marketing and growth capabilities, underlying profit growth was higher at 13.5%, supported primarily by increased gross profit and lower interest expenses. Adjusted EBIT was also ahead at EUR 636 million (versus EUR 610 million for company-compiled consensus, or 4.2% higher). Management reiterated guidance for organic sales growth of 3%-5% in fiscal 2021 and low-single-digit adjusted EBIT growth due to an expected normalization of the advertising and promotion budget from about 5% of sales in 2020 to more than 6% going forward. JDE Peet’s had previously reduced its longer-term EBIT growth target to the midsingle digits from 5%-8%. Although we expect to reduce our EUR 39 fair value estimate by a mid-single-digit percentage after refreshing our model to account for the lower guidance and first-half results, we believe the shares offer value at current levels, trading at about a 17% discount to our fair value estimate.