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Humble Group - CMD takeaways

20 september 2024

<a id="bm-comp-03ec7661-8e2c-4f0f-91e5-2e6841d972dd" name="bm-comp-03ec7661-8e2c-4f0f-91e5-2e6841d972dd" class="BMCustomAnchor"></a><table><tr><td bm-component-id="03ec7661-8e2c-4f0f-91e5-2e6841d972dd" style="vertical-align: top; width:100.000000%;"><ul><li>Presented a clear and detailed operating blueprint</li><li>SEK 3.8bn incremental revenue potential</li><li>Set to acquire M&amp;A targets at &gt;30% incremental ROIC</li></ul></td></tr></table><a id="bm-comp-2ad38af7-c108-416f-b85c-280159c57dbd" name="bm-comp-2ad38af7-c108-416f-b85c-280159c57dbd" class="BMCustomAnchor"></a><table><tr><td bm-component-id="2ad38af7-c108-416f-b85c-280159c57dbd" style="vertical-align: top; width:100.000000%;"><h3 class="bm-h3">Detailed blueprint for growth and margin expansion</h3><p>We had the opportunity to attend the CMD physically and met with both the management team and the CEOs of Humble's larger subsidiaries. Our general impression is that there is a constructive yet performance-oriented culture in the group, and that there may be an underappreciated, intangible asset in the form of a decentralised, CEO subsidiary network that allows subsidiaries to communicate across the group to generate ideas and solve problems. This would likely not have been possible for the subsidiaries on a stand-alone basis. In terms of financials, the management team presented a clear and detailed path for how it would achieve its growth. The incremental revenue potential is ~SEK 3.8bn, which is skewed towards initiatives in Future Snacking and Quality Nutrition. Moreover, the 10% EBIT margin target aligns with the company's previously communicated ambition of recovering the gross margin from ~31% to 35%. The rest of the envisioned margin uplift is derived from opex scaling.</p><h3 class="bm-h3">Simple and coherent M&amp;A agenda</h3><p>The new M&amp;A agenda was clear: generate &gt;30% ROIC by acquiring businesses at SEK 50-150m in enterprise value with an EBIT margin of ~8% at 4-6x EV/EBITA. This suggests that a majority of the businesses that Humble aims to acquire are either within the Future Snacking, Quality Nutrition or Sustainable Care segments. We were particularly impressed by Solent, which is a preferred supplier of personal care, homecare, food &amp; snacks and nutrition products to large grocery and discount retailers. As a core platform business in the Sustainable Care segment, it is likely that Solent can benefit from an increased level of supplier consolidation. Therefore, bolt-ons are likely to be especially value-accretive for a business like Solent.</p><h3 class="bm-h3">EBIT margin target 3pp above '26e FactSet consensus</h3><p>In our opinion, the most important financial target is the 10% EBIT margin target. On '26e consensus sales, a 10% EBIT margin would mechanically imply an EV/EBIT of ~7x. In relation to peers, Humble would therefore trade at a target-aligned '26e multiple that is ~50% below the average, despite higher growth potential.</p></td></tr></table>

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