Aryzta investors get glimmer of respite at last

Long-suffering investors in Aryzta could be forgiven for growing tired of peering through the greasy oven window for signs of life in the baked goods group.

Shares in the Swiss-Irish company – best known in these parts for its Cuisine de France brand – lost more than 90 per cent of their value over the past five years amid a series of profit warnings, disappointing results, management changes and, late last year, a deeply discounted rescue share sale, which raised €790 million.

However, the stock has rallied by almost 32 per cent so far in 2019, on hopes that the group, led for the past 18 months by the former boss of airport operator DAA, Kevin Toland, has begun to stabilise.

Results

Confirmation came on Tuesday, when Aryzta delivered results for the six months to the end of January that topped analysts’ expectations. While first-half revenues dropped 4.2 per cent to €1.71 billion on the year, the underlying figure was up 0.7 per cent, stripping out the effect of businesses sold last year.

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Although underlying earnings before interest, tax, depreciation and amortisation (ebitda) dipped 6 per cent to €151.6 million, it was some 4 per cent ahead of consensus. Crucially, as Davy analyst Cathal Kenny highlighted in a note to clients, profit margins in the group's real problem child, the North American division, had expanded during the six months – for the first time since 2014.

“I think the first half shows the first steps of progress on delivery and stabilisation, but we still have a lot of work to do,” Toland told analysts on a call, adding that “everything is on track” for the group to meet its own full-year earnings targets.

It’s all a far cry from the go-go first five years of Aryzta’s existence – after its 2008 creation by the merger of Dublin-based IAWS and Switzerland’s Hiestand – and the share price roared ahead as then chief executive Owen Killian led a debt-fuelled mergers and acquisitions (M&A) binge.

But shareholders, for now, will gratefully accept steadiness. Shares in the group soared as much as 10 per cent at one stage on Tuesday.

Destruction

Although Toland could have stemmed the massive destruction of value if he’d moved earlier on November’s €790 million capital raise, the money has at least helped it to halve its net debt to just over €800 million and speed up the pace of restructuring.

Toland presided over the sale of a raft of Aryzta assets last year, including Irish restaurant supplier La Rousse, its troubled Cloverhill Bakery facilities in Illinois, and its 50 per cent stake in British naan bread firm Signature Flatbreads. All told, they've raised almost €140 million.

However, more than two years after the business effectively hosted a for-sale sign over its 49 per cent stake in French frozen foods group Picard, there’s still no sign of a deal.

Indeed the original purchase of the stake four years ago for €447 million from private equity group Lion Capital was the beginning of when the wheels started coming off for Aryzta's hitherto unchallenged strategy. Analysts at the time couldn't get their head around why Killian was buying a minority stake in a business that offered no synergies with the wider group.

Aryzta managed to get its hands on €90 million of special dividends from Picard last year as the French maker of everything from frozen mini quiches to chocolate puddings refinanced itself. Analysts reckon Aryzta’s stake in the company now has an equity value of about €250 million.

Aryzta's chief financial officer, Frederic Pflanz, said on Tuesday that Picard remained a "great asset", even as its sales fell slightly in the fourth quarter as the so-called yellow vest movement in France hit consumption.

Toland added: “We’ve been on record saying Picard is a fine business, but we are not the right owners, and we remain committed to the disposal of our stake.”

The beginnings of a turnaround in Aryzta will help – as the group should no longer be seen a distressed seller.

Desmond rides in with €10m Datalex funding line

Travel retail software provider Datalex, which has succeeded Aryzta as worst stock performer on the Iseq so far this year, also received a bit of a boost this week after its main shareholder, Dermot Desmond, committed €10 million in equity and loans to buttress its finances.

The billionaire, who already owned 26.6 per cent in Datalex, raised his stake to 29.9 per cent after buying €3.86 million of new shares at €1 each in the company which has been rocked in recent months by a profit warning and alert that it may have misstated its revenues for the first half of 2018.

The price Desmond’s investment vehicle IIU was willing to pay represented a 43 per cent premium to where the stock closed on Monday before news of the investment emerged.

Other shareholders have been unwilling so far to come up to Desmond’s level – with the stock trading as low as 86.6 cent on Friday. (Still, Desmond is set to receive a 10 per cent annual interest rate on a €6.14 million loan he has also lined up for Datalex.)

Market observers say that appetite for the stock will be limited until an independent PwC review into Datalex's accounting processes is completed. That's expected next month.

While there are fears in the market that the PwC report will never be published in full, this will not go down well with investors.