Pental Ltd (ASX:PTL) has provided investors with strong encouragement heading into Christmas and the new year through a trading update that shows an expected rise in earnings before interest and tax (EBIT) of 53% in the first half of FY22.
The branded home and hygiene product developer expects FY22 first-half underlying EBIT to be approximately $6.5 million, an increase of $2.3 million or 53% on the same period of FY21.
Net sales revenue is expected to be approximately $67 million, up by $2.5 million or 3.9% up on FY21 H1 and underlying net profit after tax (NPAT) of approximately $4.5 million is expected, an increase of $1.6 million or 55%.
Encouragingly, full-year FY22 EBIT is forecast to be circa $9.8 million – an increase of 20% compared to FY21 underlying EBIT of $8.1 million.
Strong HWB performance
The expected FY22 H1 financial results have been primarily supported by strong performance of Pental’s Hampers with Bite (HWB) business that is expected to deliver sales growth of about 65% compared to FY21 H1.
While the strong sales performance in this half due to seasonal gifting was anticipated, the sales growth year on year is particularly pleasing for Pental.
From completion of the acquisition on September 1, 2021, the HWB business is expected to contribute revenue of approximately $25.7 million to Pental’s FY22 H1 results.
This revenue contribution in just four months is expected to exceed HWB’s entire FY21 revenue result and, importantly, the HWB business generates a significant portion of its revenue in the December quarter.
Further growth opportunities
As well as growing its B2C presence, HWB has been able to leverage its stronghold in the B2B segment by focusing on client and employee gifting through strong promotion and marketing execution plans.
Despite challenges posed by COVID-19 outbreaks leading to stretched delivery performances, HWB continued to perform strongly without any major disruptions.
HWB will continue to explore further growth opportunities in FY22 H2 by focusing on key seasonal events such as Valentine’s Day, Easter Holidays, Anzac Day and Mother’s Day.
Pental plans to utilise HWB’s e-commerce expertise to further scale its e-commerce footprint through a strong marketing plan to be executed in FY22 H2 with its traditional consumer brands.
Traditional business
The company has experienced a more stable demand in the fast-moving consumer goods (FMCG) segment following the initial wave of COVID-19 outbreaks during late FY20 and early FY21.
Non-grocery channels were negatively impacted in the half due to multiple outbreaks and lockdowns across Victoria and New South Wales.
The traditional domestic branded business revenue is expected to be around 6% down in FY22 H1, however, Pental has implemented several initiatives including new ranging, promotional programs and advertising campaigns to recover these sales in FY22 H2.
Strong NZ performance
It expects the negative impact to its domestic business will be significantly offset by strong New Zealand performance.
New Zealand sales in this half are expected to be about 10% up on the corresponding period of 2020 with the company’s own brands performing strongly in this market after being negatively impacted in FY21 due to shipping delays.
The company retains a positive outlook for the sales performance of its traditional business in the next half supported by its recently launched e-commerce channel and the start of product supply into a major hardware channel.
There was a successful launch of the premium Bondi Soap brand in the e-commerce channel while there have been first to market launches of White King, Country Life and Velvet value packs.
During the current half, Pental has invested in upgrading fire protection systems at its manufacturing and warehouse facility in Shepparton, Victoria, achieving considerable savings in insurance premiums effective December 2021.
An increase in input costs of commodities and freight have negatively impacted core business margins during the half and Pental has implemented price recovery strategies, including the substitution of raw materials and strategic price increases, for the start of FY22 H2.
The company maintains strong cash flow and a strong balance sheet. It has an effective net debt-free position with $12 million in cash and $4.7 million in acquisition-related borrowings forecast as of December 26, 2021.
It will report audited financial results for the half-year ending December 26, 2021, in February 2022 and will include a comparison to the half-year ending December 27, 2020.