Image source: Unilever plc
With the sun beating down on much of the UK in recent days, many people’s minds may have turned to ice cream. So that seems appropriate Magnum Ice Cream Company (LSE: MICC) released a trading statement today (30 April) which has seen the share price rise by 11% as of writing on Thursday afternoon.
That kind of jump can sometimes suggest that investors may have been underestimating the company’s prospects.
Is that possible here?
A lot of ice cream but a little lolly!
In fact, the review may seem like a paradox.
Sales revenue and sales volumes at the world’s largest ice cream company have grown organically. But the company actually reported slightly lower revenue for the three-month period in question than the same quarter last year.
Magnum’s global reach helps explain that difference. It is affected by foreign exchange movements which means that, although sales revenue may increase in local currency, it decreases when translated into the company’s reporting currency (euros).
Investors are eating it up
So, what caused today’s price increase for the Magnum Ice Cream company?
It is still a growing business as an independent company since the split Unilever last year.
I think investors are still trying to figure out what the company’s prospects are and what kind of valuation it might be worth.
In fact, today’s trade update was not good. There was nothing in it that made me think Magnum had great potential for growth that I hadn’t appreciated before (even though it’s high in protein, low in fat. Yasso pints can still be a kind of trendy innovation that can help build sales strongly, I think).
But what it did show was a business with strong, well-performing brands, and long-term growth prospects.
Can this provide long-term value?
Part of the reasoning behind Magnum’s listing as a private entity was that it might benefit from a more clearly focused investment climate. That could beat integration with Unilever’s entire product portfolio.
The company said that, even if the Middle East conflict poses risks to input costs, it expects adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) to grow.
It also sees organic sales growth of 3%-5% annually. Exchange rate fluctuations can have a negative impact on that when converted to euros, however.
Increases in input costs may be more problematic in the long run, depending on what dynamic supply chains may mean for input costs.
But Magnum has many good qualities.
The number of points of sale worldwide that carry their products has increased. An expansion of the US discount sector could help offset the potentially negative impact of weakening consumer confidence (although I am concerned about the potential risk to the profits involved).
The company has a strong portfolio of products beyond its brand name and an excellent global distribution network.
From a long-term perspective, I think the current share price may provide value and see this as a share worth considering.
