The United Malt Group Ltd (ASX: UMG) share price has recovered since COVID. Will the HY21 results generate more forward momentum in the United Malt share price?
United Malt is the fourth-largest commercial maltster globally, producing ingredients for the brewing, distilling and food markets.
UMG share price
COVID waves affect volume
Revenue dropped by 11% to $590 million as a result of lower volume, in particular across the UK and North America markets that experienced second waves of COVID lockdowns.
United Malt’s earnings before interest, tax, depreciation and amortisation (EBITDA explained) fell by 32% to $52.7 million. This was a reflection of the negative foreign exchange impact of $6.3 million and one-off costs relating to the closure of the Grantham facility and transformation costs.
The company notes the COVID restrictions forced more off-premise consumption, which pushed up demand for base malt compared to higher-margin specialty malt products. In other words, it was difficult for premises to expose specialty malt products to their customers during the second wave of COVID restrictions.
Increased freight costs and continued shipping container disruption also contributed to the drop in EBITDA.
Interim dividend
United Malt has decided to pay an interim dividend of 2 cents per share.
The dividend payment represents a payout ratio of 45% of net profit after tax (NPAT) for the period. This is below the company’s policy to distribute around 60% of NPAT.
Management optimistic
Managing Director and CEO, Mark Palmquist is buoyed by the current vaccination rates in the US and UK and is hoping for the northern hemisphere spring/summer weather pattern to support improved activity.
Palmquist also flagged that since March 2021, volume is tracking at around 95% of pre-COVID levels.
Another round or taxi time?
As you can see, the United Malt business has been affected by multiple external factors outside of its control.
I prefer not to use the share price as a measure of performance but in this case, the cyclical nature of United Malt’s business mirrors its share price movements.
As part of the Rask Investment Philosophy, I prefer to focus on businesses that are not strongly influenced by market forces and have strong pricing power.
In United Malt’s case, a number of factors need to go right for it to achieve consistently high levels of growth.
If you are on the hunt for ASX growth shares, I suggest signing up for a free Rask account and accessing our full stock reports.
