Danske Bank: STG – Q2 21, strong result with upgraded 2021 guidance

STG (OW): STG released the Q2 21 result yesterday evening (after market close). The result was quite solid with a 12% beat on EBITDA (vs. BBG. cons) and net sales in line. The growth in EBITDA corresponded to 20.8% y/y organically and was driven by strong demand for hand-rolled cigars in the US as well as a favourable price-mix overall. Despite the current strong demand, STG expects demand towards the end of the year to taper off somewhat as comps also become tougher. Nonetheless, STG made positive revisions to the outlook given the strong first half of the year. The group now expects organic EBITDA growth in the range of 16-20% (vs. 12%-18% previously), FCF before M&A at DKK1.0bn-DKK1.3bn (unchanged) and Adjusted EPS at more than 35% (more than 25% previously). In terms of the STG balance sheet, things were slightly less cheerful, with an increase in reported net debt of DKK342m due to dividends and share buy-backs. Reported net debt to EBITDA was unchanged q/q at 1.7x, due to the aforementioned increase in EBITDA fully offsetting the increase in net debt. Overall a strong result from STG, which leads us to maintain our Overweight recommendation on the name. Pick-up relative to peers is solid and STG could be a good hedge against any potential Delta-induced locks-down. Still, we caution that is has now been some time since the Agio Cigars purchase, hence M&A could return to the agenda in the medium term.