Great value for a good business

Danone’s 2022 full-year results show like-for-like (LFL) net sales increased by 7.8% compared with 2021. Prices rose by almost 8.7%, while the volume/product mix element dipped by 0.8%. But excluding Russia – which it is exiting – the latter rose by 0.2%. The recurring operating margin was 12.2% and recurring earnings per share (EPS) rose by 3.6% to €3.43.

A €1.2bn one-off hit from implementation costs related to the Local First project and the €500m write-off from disposing of the

Russia business was already expected. Sales grew in all regions. North America was up 8.9% and Europe up by 5.2%, led by specialised nutrition. China, north Asia and Oceania grew 6.7%, driven by specialised nutrition in China and dairy in Japan, while the rest of the world rose 10.7%.

Management describes 2022’s growth as “solid”, with contributions from all regions and categories. “Rapid progress” was apparently made on reorganising the product portfolio.

Forward financial guidance is in line with mid-term targets of LFL sales growth of 3%-5%.

Average analysts’ forecasts put Danone on a 2023 prospective price/earnings (p/e) ratio of just over 15, which is expected to drop to below 14 next year. That represents great value for such a highquality business whose outlook is now improving after a period in the doldrums. The annual payout is being hiked from €1.94 to €2 per share, up by 3.1%, meaning that the dividend yield is now a decent 3.8%. French withholding tax of 25% reduces that to a stillrespectable 2.85% for UK investors.

Danone’s shares may not have bottomed out yet. However, they represent a much better value opportunity than they have done for years. As investors begin to latch onto this and earnings recover, the stock could start to regain its former rating. That would mean a big price rebound.