No-Moat Glanbia Sharpens Focus on More Differentiated Segments After a Year of Record Profits

No-moat Glanbia GLB delivered stronger-than-expected full-year 2022 results, with EBITA of EUR 347 million—around EUR 50 million higher than our forecast. This was mainly the result of a hefty top-line delivery on account of a currency tailwind and exceptional pricing actions, which largely compensated for the cost inflation experienced during the year. Given this result, we increase our 2023 EBITA forecast by 10% to GBP 370 million to account for the carry-through of price increases. Net debt was also reduced by one quarter to EUR 460 million given strong cash flow generation. These updates, together with a time value of money adjustment take our fair value estimate to EUR 13 from EUR 12. Shares appear fairly valued at current levels.

We are also updating the Morningstar Uncertainty Rating for Glanbia from Medium to High. From a fundamental perspective, we believe Glanbia’s significant exposure to the commoditized U.S. cheese business (around 50% of the top line in 2022) adds significant volatility to the group results. This was evident in 2022 when price increases for the segment were above 20%. We expect food and energy prices to normalize over the coming years, which should add further pressure to the top line. Our Uncertainty Rating change was also informed by a quantitative methodology to help calibrate our fundamentals-based assessments of uncertainty across a broad universe of stocks.

Glanbia also announced the decision to dispose of the group’s interest in the Glanbia Cheese joint venture in the U.K. and Ireland to its partner, Leprino Foods, for expected cash proceeds of EUR 160 million. While this does not have a material impact on our valuation, we believe it is a step in the right direction, as it will provide additional capital for management to continue to expand the portfolio of the nutritional solutions segment. We believe this is the most valuable segment for Glanbia and will deliver growth and margin contribution above the companywide average.