Numico profit rises 8.2 pct, outlook disappoints

Europe's largest maker of baby formula reported on Thursday earnings before interest, tax and amortisation (EBITA) rose to 374 million euros ($445 million), matching the average forecast of 374 million in a Reuters poll of 18 analysts.

Net sales rose 15.5 percent to 1.99 billion euros for 2005, versus a forecast for 2 billion, and Numico gave a sales growth target for 2006 of 11-13 percent including two major acquisitions.

Chief Executive Jan Bennink named "toddler milk" bottles and "fruit puree" cups as examples of new baby food products to spur higher sales.

"We have made major progress in 2005 in achieving our goal of becoming the high-growth, high-margin specialised nutrition company ... We will hold EBITA margins stable in order to be able to invest in the business, while aggressively looking for cost-saving and productivity opportunities," he said.

The outlook was "somewhat conservative", Rabo Securities analyst Patrick Roquas said in a research note, adding that the baby food business, which accounts for around 82 percent of sales, missed estimates.

Shares in Numico, which also produces specialised food for people suffering from diseases such as AIDS and cancer, were down 2.4 percent at 36.87 euros by 0956 GMT after falling as low as 36.38 euros.

Analysts noted that sales of baby food stagnated in the fourth quarter and that a product recall over concerns about jars in the Benelux countries and Italy had some impact.

However, they responded positively to Numico's proposal to resume dividend payments for the first time in four years at 0.15 euro per share.

EASTERN PROMISE

Numico said the integration of leading Asian baby food company EAC Nutrition Dumex was well underway after the 1.2 billion euro acquisition late last year and should be completed before the end of the second quarter of 2006.

Numico's and Dumex's operations in China, Malaysia and the Middle East have already been integrated, and the Philippines' business will be closed, it said.

Reviews of the market in China, Thailand and Malaysia, a region with high birth rates, confirmed major opportunities for Numico, Bennink said, adding Dumex would divest non-core assets and focus on these key countries, eyeing a 20 percent increase in sales growth.

Numico's other major acquisition of last year, Italian baby food business Mellin, also gave a promising performance with integration well underway, leading to annualised cost savings of 15 million euros, it said.

The company, which has a market capitalisation of around 7.2 billion euros, trades at around 31 times projected 2006 earnings compared with a sector average for European food and beverage companies of about 16, according to Reuters Estimates.

"Given Numico's excellent growth prospects, we would use any share price weakness as an opportunity to pick up the shares and retain our "buy" recommendation," analysts at ABN AMRO said.

However brokerage Kempen downgraded the stock to "sell" from "hold", noting its high valuation left no room for disappointment.