DVCMY - Cheers To Campari: A Standout Year Amid Market Turmoil

2023-03-09 06:05:49 ET

Summary

• 2022 results showed Campari’s strengths despite challenging market conditions.
• The company remains confident in 2023 results.
• Campari stock’s rating is confirmed a buy.

Campari ( OTCPK:DVDCF ) has raised a glass to a standout year, with its latest financial results indicating that the company has made significant progress despite challenging market conditions.

Indeed, in the face of inflationary pressures and other headwinds, Campari achieved double-digit organic sales growth, expanded its operating margins, and demonstrated the strength of its brand portfolio, as I expected when I wrote my previous article on the company.

Looking ahead to 2023, Campari remains confident in its ability to maintain its margins and continue generating sustained organic sales growth, fueled by its strong position in the aperitifs and other premium product categories. Therefore, in my opinion, Campari is a buy, thanks to its solid long-term prospects and attractive valuation, making it an irresistible pick for investors.

2022 Results showed Campari’s strengths

The latest financial report of Campari indicates that the company has made significant progress in achieving its long-term growth goals despite challenging market conditions. Here I sum up some key points from the report:

• Double-digit organic sales growth and expansion of operating margins despite increased material prices. Campari has achieved organic sales growth of 16.4% in 2022 compared to 2021 and 39.9% compared to 2019, with a three-year organic compound annual growth rate of 11.8%. The company has also expanded its operating margins by 50 basis points through operational leverage, compensating for the expected dilution of gross margin caused by inflationary pressures on material costs.

• The gross profit (58.9% of total sales) increased by +22.5% to €1,588.6 million, despite the strong inflation on material costs, particularly glass, and logistics.

• The adjusted EBIT increased by +30.9% to €569.9 million, generating an increase in profitability of +50 points base, while adjusted EBITDA was €660.3 million.

• 40% organic business growth compared to pre-pandemic levels, reflecting a successful long-term strategy. The company's strong organic sales growth is driven by a combination of brand strength, price increases, and investment in commercial structures that have led to strong consumer demand.

• Planned investment in key categories such as aperitifs, bourbon, and tequila to double overall production capacity. The company is accelerating its investments in the supply chain to meet future consumer demand and plans to double its production capacity in key product categories.

In my previous article I wrote:

Campari is well positioned to face a context of high inflation, by virtue of high margins and the possibility of raising the price list. It's also well positioned to face a possible recession as the leader in aperitifs, which generally do not slow down in a period of slowing economy.

During the last quarter, Campari not only showcased all of these qualities, but also exceeded expectations.

Moreover, the acquisition strategy used by Campari proved to be fruitful, with net sales from newly acquired companies totaling €593.5 million. On the other hand, the company's financial debt increased to €2.05 billion as a result of these acquisition expenses.

Looking ahead to 2023

The company's management is confident in the positive momentum of its business, particularly in the aperitifs category, and believes it can maintain current margins despite inflationary pressures in the macroeconomic environment, by capitalizing on the power of its trademarks and premium positioning to increase prices.

In the long term, the management remains confident in its ability to achieve sustained organic sales growth, generating an expansion of its operating margins. Moreover, in order to meet future consumer demand, the company is accelerating its investments in the supply chain with the goal of improving its production capacity in key product categories such as aperitifs, bourbon, and tequila.

In conclusion, although these seem like the usual good intentions, management has proven to be extremely skilled in a complicated year like 2022, so I am very confident that these targets can be achieved without problems.

Valuation

In my last article, I gave the company a "buy" rating. Now, I have updated the price target and the company appears to have a possible upside of 8.66%, and therefore I have confirmed the buy rating.

Below I attached the updated final tables of my DCF model on the company. In particular, the target price is currently €10.62 against €10.80 of my previous valuation.

In particular, by comparing the tables you can see that I have changed the risk free rate, bringing it to 4.30%, and I have adjusted the data on revenue and gross margin for 2023.

However, a change on the price target like this is negligible, in fact the rating remains buy. However, I wanted to show the modifications and calculations I made to arrive at this conclusion.

(It should be noted that all the results and calculations are in euros)

To sum up

From aperitifs to investments in the supply chain, Campari has proven time and again that it has the vision and the strategy to navigate even the most challenging market conditions. With its impressive financial results in 2022 and confident outlook for 2023, Campari is clearly a buy for any investor seeking growth and stability.

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