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May 5 2020, 06:30 IST/BST
We believe the key medium-term debate for Danone will centre on the interplay between price/mix growth and margin – whether it can expand margin in an environment where recessionary forces are shaping consumer behaviour and with growing risks of negative mix effects. In a resource-constrained environment, we believe larger consumer packaged goods (CPG) players will be relatively advantaged following a decade of losing share to smaller competitors. For Danone, we model for a growth pivot towards volume with a more cautious stance on margin delivery due to deteriorating mix. We lower our FY20 and FY21 EPS forecasts by 9.5% and 7.2% respectively – capturing prudent margin assumptions and FX. We retain our ‘Outperform’ rating based on valuation (16x FY21 P/E).