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Kri-Kri | Flavorful growth; initiating coverage with a Buy

Leading Greek yogurt producer with international footprint, strong branded positioning and dominance in local private label – Kri-Kri is one of the leading Greek dairy companies focused on the production and selling of yogurt and ice-cream. The business model is based on the provision of a quality offering at affordable prices, an increasing focus on niche categories, the extensive distribution network, the proximity to raw materials and an expanding foreign footprint (international c48% of sales). The main value driver is the yogurt segment (79% of sales), with KRI being a key player in Greece thanks to its strong branded share and the dominance in private label, which effectively insulates it from private label competition evident in other markets.

Record 2023 to be followed by at least high single-digit sales growth in the coming years – Although the yogurt market is in general a segment with tepid volume growth, it does offer scope for growth in niches such as kids/infants as consumers become health conscious and the popularity of yogurt as a stand-alone snack increases. On its part, KRI has managed to deliver c16% sales CAGR since 2015 as, contrary to foreign peers, it has sustained strong volume growth while delivering price/mix accretion thanks to innovation. Following 2-digit price/mix increases in 2022-23 set to lead to 24% sales growth in 2023e, we expect a sequential deceleration in 2024e revenue growth to +9% (volume-led) as pricing rolls off. We expect KRI to remain on a sustainable high single-digit revenue growth trajectory in the coming years mainly driven by volumes further augmented by c1% price/mix. We see further optionality to this path stemming from KRI’s upcoming foray into the US market through a frozen yogurt offering.

EBIT reset at c€35m, 2x vs 2019 levels – Kri-Kri is prone to swings in commodity prices, quite natural given that COGS accounts for >70% of total costs. Following a 12ppts erosion in gross margins in 2022, 2023 is set to see a full reversal (+16ppts yoy) thanks to the combination of pricing and simultaneous easing of cost inflation. We expect a partial unwinding of pricing in 2024e, and although this will drive EBIT down yoy (-14%), we still estimate EBIT will settle at 2x 2019 levels, corresponding to a material reset near the €35m mark, a level we see as sustainable. Post 2024e, we see a return to a c8-11% profit growth algorithm, with EBIT margins settling at c15% over 2024-26e.

Investments to be funded by internally generated FCF; scope for heftier cash returns – KRI has been a consistent cash generator converting >70% of EBITDA into OCF in the last 7 years, thus being able to fund capex with organic FCF. The cash generative characteristics of the business are validated by sector-leading returns and an ungeared balance sheet (2023e net cash at €8.5m). Strong FCF will pave the way for a compelling shareholder remuneration policy in the future, with our assumed c40% payout leaving room for heftier cash returns or more aggressive international expansion.

Valuation; initiating with a Buy – Despite the c65% rally in the past 12 months, KRI still trades at 25% discount vs food manufacturing and dairy peers despite offering a superior growth profile (vs 2024e) and enjoying a healthier balance sheet. Our DCF-based valuation, based on 9.7% WACC, generates a PT of €13.6/share, effectively valuing KRI at c9x 2025e EV/EBITDA, c15% discount vs peers.