Atlantic Grupa raised to BUY, TP HRK 1,470 - Top line and margins resilient to pandemic

High exposure to the HoReCa channel and impulse consumption makes Atlantic Grupa look somewhat vulnerable in the current pandemic environment within consumer non-cyclicals. However, if we exclude the impact of divested businesses, lfl sales turned out quite resilient in a bumpy 1H 2020 (-0.9% yoy), primarily on the back of a very good performance of Argeta and Donat MG brands as well as the Pharma business. Normalised profit margins came in even higher yoy, thanks to an optimised product portfolio but also due to strong cost control and lower raw material prices. Moreover, coffee and sugar prices outlook suggest that the positive impact on margins should continue also in years ahead. Argeta and Donat MG should remain the drivers of the top-line growth, as the company puts strong emphasis on their internationalisation, which is certainly an advantage and should enable the sales growth to beat the GDP growth rates in key markets, which would most likely take at least two years to return to pre-crisis consumption levels. The product portfolio optimisation process has come to an end and the very low net debt/EBITDA ratio of 1.1x offers plenty of room for financing some acquisitions which is seen as the likely next step, as confirmed by the company. We increase our TP to HRK 1,470 and raise our recommendation to BUY from HOLD.