First Berlin Equity Research has published a research update on Schloss Wachenheim AG (ISIN: DE0007229007). Analyst Simon Scholes reiterated his BUY rating and decreased the price target from EUR 25.00 to EUR 22.00.

Final 2021/22 results were in line with the preliminary figures Schloss Wachenheim (SWA) published on 22 August, but above the numbers published in our most recent study of 17 May. Sales rose 8.3% to €384.0m (FBe May 22: €372.7m; 2020/21: €354.6m;) while EBIT jumped 19.5% to €29.2m (FBe May 22: €26.0m; 2020/21: €24.4m). The results were above our forecast because of stronger performance in all three geographic segments than we had modelled. Germany and East Central Europe developed particularly strongly in the final quarter of the financial year (ends 30 June). Both segments grew at double digit percentage rates in Q4 after declines in Q3. The dividend proposal for 2021/22 of €0.60 (FBe May 22: €0.50; 2020/21: €0.50), if approved at the AGM on 3 November, will be 20% above last year’s payout. SWA raised prices to cover increased raw material costs in 2021/22 and expect to continue to do so in 2022/23. Given that inflation is also reducing consumer purchasing power, SWA is guiding towards slight volume declines in all geographic segments in 2022/23. Management expects the price rises to result in slight sales growth, but is guiding towards a decline in EBIT and net profit before minorities to €25m-€27m and €18m-€20m respectively due to higher costs. These numbers are above our previous forecasts (€24.2m and €17.3m respectively), but we have reduced our price target from €25.00 to €22.00 to reflect an increase in our WACC estimate. We have raised this figure from 7.9% to 9.1% due to a doubling in the 10 year German government bond yield to 2.0% since our last study in May. In addition, we expect SWA’s cost of debt to increase in 2022/23. However, we expect inflation to begin declining in 2023 and advise investors to buy SWA shares up to our new price target of €22.00 in anticipation of a corresponding improvement in consumer sentiment.