Recent acquisition of Candyking is expected to increase EBIT-margins from 9 % 2017 to 11 % in 2020E. Cloetta has estimated that the acquired company is expected to deliver synergies of 100 MSEK on an annual basis from 2020 and onward. Considering the fact that the pick & mix candy accounts for 30 % of the company’s sales and is a growing category in Cloetta’s markets, it stands to reason that the acqusition strengthens Cloetta’s position within this category. What additionally speaks for the plausibility of the synergies is that Candyking has no in-house production, which acts directly cost-saving for Cloetta in terms of production, logistics and administration.

Extensive portfolio of strong brands that are well established in the Nordic region. Brand extensions, brand re-launches and the launch of seasonal products of these strong confectionary brands in existing, closely related markets is expected to further drive organic growth annually with 2.6 % until 2020E.

Net debt/EBITDA ratio in line with target of 2.5x. The current net debt/EBITDA of 2.39x provides a positive outlook for Cloetta in the sense that debt no longer needs to be strongly lowered, and the company can instead focus on new potential acquisitions and continued dividends.

Attractive non-cyclical market is indicative of stable growth. The confectionary market is relatively insensitive to economic fluctuations and displays a stable growth that during the last years has amounted to approximately 2 %.

Competitive risk from major international players. The confectionery market is highly competitive, which may worsen Cloetta’s EBIT-margins. However, Cloetta’s continuously on-going product development together with their active work on innovation and brand recognition contribute to the company’s ability to maintain market shares in the foreseeable future.

Relative valuation indicates a 36 % upside potential in a base case until 2020. Revenues are estimated to grow by a CAGR of 19.6 % in consideration of the acquisition from 2017 to 2020, and EBIT-margins are expected to incease from 9 % to 11 %. Given a target mutiple of P/E 22 on the basis of a peer group, an upside of 36 % is motivated, which reveals a healthy potential for returns.

Analysts: Sara Selin & Anna Bijelic