United Malt Group Limited

UMG Details

FY21 Financial Performance: United Malt Group Limited (ASX: UMG) operates in the distillery business and is involved in malt production, distribution, and warehousing. On 14 December 2021, UMG confirmed its Annual General Meeting (AGM) of shareholders would be held on 11 February 2022 at 10:00 AM AEDT.

• Top-Line Movements: In FY21, revenue dipped by 4% to $1,235 million on constant currency basis (CFX). EBITDA stood at $123.3 million, falling in line with the guidance, a decline of 16.1% on CFX basis.
• Bottom-Line Update: EBITDA shortfall was primarily driven by one-off items (incorporating transformation costs, Grantham Closure, and SaaS).
• Asset Returns: Return on segment assets stood at 14.6% relative to 12.7% in FY20. Capital expenditure contracted to $3.6 million, down by 35.1% from FY20.
• Cash Flow Stance: Operating cash flows surged and stood at $153.8 million relative to $101.7 million in FY20, primarily driven by proceeds from inventory funding. Inflow from inventory funding emerged from a drawdown in Australia and earlier harvest in the UK.
• Financial Position: Net debt to EBITDA stood at 2.1x as of 30 September 2021, following the target range. Cash conversion stood higher at 125% relative to 65% assumed in FY20 due to $59 million of inventory funding borrowings.

FY21 Financial Summary, Analysis by Kalkine Group

Key Risks and Challenges

The company faces the COVID-19 impact on-premises demand, export volumes & consumption in Asia. The pandemic has increased ocean freight costs across the shipping markets and restricted the production capacity in line with the constrained supply chain.

Outlook

UMG witnessed an improving performance in the UK and North America and encouraged continuous counteractive COVID 19 disruptions affecting malt volumes in Australia/Asia. UMG expects a total capex of $110 million for FY22, incorporating a growth capex of $71.5 million.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock’s historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation

The stock of UMG gave a positive return of ~14.536% in the past one year. The stock is currently trading higher than the 52-weeks’ average price level band of $3.530 - $4.760. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a downside of low single-digit (in percentage terms). The company might trade at a slight premium to its peers, considering high operating cash flows despite market turmoil and expansion strategies. For valuation, few peers like Ridley Corporation Ltd (ASX: RIC), Elders Ltd (ASX: ELD), Australian Agricultural Company Ltd (ASX: AAC) and others have been considered. Given the current trading levels close to 52 weeks’ high, shredded operating metrics, reduced working capital, high freight costs, and downside indicated by valuation, we suggest investors book profits and give a “Sell” recommendation on the stock at the current market price of $4.600, as of 06 January 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

UMG Daily Technical Chart, Data Source: REFINITIV

Note: The purple line reflects the RSI (14-day period)

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.

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