United Malt Earnings: Overshadowed by Potential Takeover

We make no changes to our AUD 4.75 fair value estimate for shares in United Malt UMG following the release of interim fiscal 2023 earnings. First-half underlying EBITDA of AUD 53 million was marginally above the company’s expectation of approximately AUD 51 million prereported in a trading update on April 27—albeit 15% lower than the midpoint of prior first-half guidance. A two-month delay in opening the Inverness facility reduced first-half expected volumes by about 15,000 metric tons, and lower sales volumes to brewers during the period were only partially offset by improved commercial terms benefitting gross margins.

We continue to expect earnings to be weighted to the second half, coinciding with higher beer demand amid the Northern Hemisphere summer. Gross margins improved during the latter stages of the first half as improved commercial terms began to take effect. We think Canadian barley prices and quality headwinds are also unlikely to be repeated. The latest projection from Agriculture and Agri-Food Canada is for 2023 Canadian barley production to be 44% higher than 2022—above the five-year average, with similar production flagged for 2024. The maltster maintained fiscal 2023 underlying EBITDA guidance of AUD 140 million to AUD 160 million. We make no changes to our forecast at the midpoint of guidance, representing a 41% improvement from fiscal 2022, but still 15% below pre-COVID-19 fiscal 2019.

The earnings release was overshadowed by the indicative proposal from Malteries Soufflet. Our fair value estimate is predicated on our stand-alone valuation of AUD 4.00 per share and a 75% chance of a takeover by Malteries Soufflet, the second-largest maltster globally, going through at AUD 5.00 per share.