First Berlin Equity Research has published a research update on Schloss Wachenheim AG (ISIN: DE0007229007). Analyst Simon Scholes reiterated his BUY rating and maintained his EUR 22.00 price target.

Although inflation is falling and wage and salary increases are partially compensating for lost consumer purchasing power, the business environment remained challenging for SWA during the Christmas quarter. Group volume fell 6.1% to 73.7m bottles in Q2 23/24 (Q2 22/23: 78.5m bottles) due to price increases which SWA was forced to implement to compensate for higher raw material and energy costs. Sales rose 4.3% to €148.1m (Q2 22/23: €142.0m) but was 3.4% below our forecast of €153.3m. Q2 23/24 EBIT at €16.4m (Q2 22/23: €12.5m) was 11.3% below our expectation. Q2 23/24 EBIT and 22/23 Christmas quarter EBIT were burdened by exceptional costs of €0.3m and €4.4m respectively. Stripping out these items, the Q2 comparison was €16.7m vs €16.9m. In the annual report published last September, SWA guided towards FY 23/24 sales growth of 6-9%, EBIT of €28m-€30m and net profit before non-controlling interests of €19m-€21m. Given that sales were up only 4.5% at the H1 23/24 stage, i.e. after the crucial Christmas quarter, management is now looking for full-year sales growth of 5%. EBIT and net profit guidance remain intact, but SWA has pointed out that these figures are likely to be at the lower end of their respective ranges. We have lowered our sales forecast to reflect new guidance, but our profit estimates are little changed as these were already near the bottom of the guided ranges. We continue to believe that falling inflation will feed through to lower interest rates and improving consumer sentiment over the coming quarters. The decline in the German 10-year bond yield from 2.71% at the time of our last note in mid-November to 2.36% now, cancels out the slight reduction in our sales and profit forecasts. We maintain our Buy recommendation and price target of €22.00.