EBRPF - Ebro Foods: Higher Dividends And Lower Share Prices Offer Attractive Yield On Cost

2024-06-12 06:37:48 ET

Summary

• Revenues marked a new 10-year record in 2023 and are expected to stay flat in 2024 and 2025.
• The EBITDA margin significantly improved in 2023 and Q1 2024.
• High inflation rates mean that Ebro Foods could suffer a further margin contraction in the short and medium term.
• The balance sheet is very robust thanks to recent divestments.
• The recent share price decline represents a good opportunity for potential dividend investors interested in geographically diversifying their portfolios.

Investment thesis

I wrote an article about Ebro Foods ( OTC:EBRPF ) in August 2020 because a long-lasting margin contraction was not allowing the share price to surpass its all-time high reached in 2018, leaving a dividend yield of ~3% for potential investors despite a long-term positive revenue trend that was being boosted by the coronavirus pandemic. As Ebro Foods is a company established in Spain with a tradition of over a century and operations all around the world, I consider it a good choice for those dividend investors interested in geographically diversifying their portfolios, since in my opinion, it is a company that any dividend investor can buy and forget for many years while reaping the dividends. Furthermore, despite being based in Spain, only ~8% of revenues are provided by operations there, whereas the rest are generated in international markets, mostly the rest of Europe and North America.

Having said that, the company is currently raising some concerns as its share price, which has declined by 16% since I published the previous article, suggests. In the past four years, sales have continued to rise (after a slight decline in 2021), setting a new 10-year record in 2023, and it seems that they will remain stable in 2024 and 2025. Also, despite a slight contraction in margins suffered in 2022, 2023 closed with a very healthy EBITDA margin of 12.7%, which although not exceptional (for what investors were used to before 2018), is allowing the company to stay profitable. Even better news is that Q1 2024 closed with an even higher EBITDA margin. The problem is that the expected sales stagnation, which could be considered positive as it will take place at 10-year record levels, is expected to take place in a highly inflationary macroeconomic environment, which means it could in some way be accompanied by a loss of volumes (if product prices keep increasing) or margins (in case prices don't increase, but volumes remain stable)....

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