Inghams strategy day provided an upbeat tone about the opportunities to improve its sales mix and capex projects that will lift profit margins. The company is targeting double-digit EBITDA margins over time, which would be a 25% lift on our base case of 8%. Given a favourable industry structure, higher margins are possible.

Inghams reported FY23 EBITDA growth of 36% on a pre AASB-16 basis. For the second-half, the EBITDA margin improved 260bp. Strong sales growth is price-driven and will support FY24e earnings. Production issues from FY22 are now resolved and volume growth should resume. Inghams is at the start of a multi-year recovery in EBITDA margins and it should achieve double-digit earnings growth.

City Chic has announced the sale (exit) of its UK and European business for A$12 million. This a modest price given it paid close to $50 million, but it does simplify the group and further improves its net cash position. We lift our EBITDA (pre AASB-16) in FY24e from -$6 million to -$1 million. Medium term, we have lowered our EBITDA by close to $3 million, indicating a 4x multiple for the exit. The strategic review clearly signals a focus on simplicity for City Chic and there is sufficient upside in the Americas and Australia/NZ for the group. Its net cash position also adds to the appeal and is a key feature of our positive rating.

Tobacco may be somewhat inconspicuous in supermarkets but it has a meaningful impact on sales and margin outcomes given demand has dropped significantly in the past year. Metcash faces the biggest headwind given tobacco could account for 15% of group sales. The drop in tobacco is partly driven by the rise of illicit tobacco and vaping.

Treasury’s guidance suggests group revenue will fall about 7% in 2H23e. We estimate Treasury Americas revenue could be down 23% in USD terms. This is a large drop from three factors – reduced 19 Crimes sales, lower Sterling brand sales and the Californian fires impacting Vintage 2020 luxury wine released. While the luxury sales should rebound, we are more cautious on 19 Crimes and Sterling, which may have to reset lower as smaller brands. Given the deteriorating 2H23e, growth in FY24e will be impacted. We forecast FY24e revenue of $2,437 million, growth of 1%.

Costa emphasised an “exceptional” period in its International operations. Morocco has benefited from good yields and relatively high prices, given the rival Spanish blueberry harvest has been poor. China has had the increased hectares contribute revenue alongside higher prices. We think there will be some normalisation in FY24e and forecast EBITDA of $97 million.

Costa reported 1H22 EBITDA of $141 million in line with guidance given in July. While there was earnings growth, profit margins did fall and we expect lower margins in 2H22e. Pricing in mushrooms and berries has been strong, but the lower quality citrus harvest for 2022 will lower prices realised this year. We forecast EBITDA of $241 million for FY22e. The company has said that the outcome for citrus is unknown and we see an EBITDA range anywhere between $220 and $245 million as plausible.