Equity Analysis /
Croatia

Atlantic Grupa: Lean and fit to withstand challenging times

  • Healthy balance sheet and strong cash flow from operations

  • New dividend policy and stock split increase the attractiveness of the stock

  • The drop in profitability is temporary, resulting from strong inflation

Tea Pevec
Tea Pevec

Head of Research

InterCapital
1 June 2022
Published by

We update our coverage of Atlantic Grupa with a HOLD recommendation and a share price target of HRK 1,630.00 or HRK 408.00 after a share split that is expected to be confirmed on its GSM to take place on 15 June. There are several reasons behind our positive view:

Increasing profitability by disposing of unprofitable businesses. During stable times, management was focused on its strategy and delivering results by continuing its disinvestment of non-core business operations. The last of its divestment was the baby food brand Bebi in Russia in 2020, while in 2021 Atlantic found a quality and promising strategic partner that took over the production plant in Slovenia, where the said product range was produced. Management continued to direct their focus on strengthening the main categories of FMCG: coffee, savoury spreads, salty snacks, chocolate, and beverages.

The drop in profitability is temporary, resulting from strong inflation. In 2022 we expect operating profitability to fall to the lowest level in the projection period due to the high inflationary pressures that will result in the growth of COGS and material expenses above sales growth. Strong brand management and operations are expected to allow adjustment of profitability in challenging times, as Atlantic continues to be the employer of choice in almost all its markets.

New dividend policy and stock split increase the attractiveness of the stock. The Group changed its dividend policy by lifting the ceiling of the pay-out ratio from 25% to 45%. In 2022, they have increased their dividend to HRK 50 as an incentive to strengthen investors' belief in Atlantic Grupa’s share. At the share price before the announcement, this has amounted to a DY of 3.14%. For 2023, we expect the dividend to remain at the same level, as part of 2021 profit will also be paid out. By the end of the projected period, we expect dividend yield to amount to app. 3.7% at the current share price.