JDE Peet's H1 2020 Top-Line Lower With Profit Growth Supported by Lower Costs; Shares Fairly Valued

JDE Peet's reported half-year results with organic growth down 1.1% (versus up 0.5% for company-compiled consensus and up 0.3% in our model for the full year). Despite negative volume growth, adjusted EBIT margin came in higher at 19.8% (versus 18.6% for consensus and 18.2% in our model for the full year) but this was driven primarily by a reduction in advertising and promotion expenses, which we do not perceive as sustainable in future. Management guided for positive organic growth in fiscal 2020 and adjusted EBIT growth within the midterm target range of 5%-8% (versus 1.4% growth for consensus and 1.3 % decline in our model). We do not anticipate changing our EUR 39 fair value estimate for JDE Peet's despite the profit beat and upbeat full-year guidance as this relies on lower marketing and promotional expenses, which we expect will normalise as the coronavirus situation evolves in future quarters.