Another strong quarter

La Doria 20 November 2015 Update

La Doria

Another strong quarter

Q3 results

Food & beverages

20 November 2015

Price

€12.87

Market cap

€399m

Net debt (€m) at 30 September 2015

86.5

Shares in issue

31m

Free float

36%

Code

LD

Primary exchange

Borsa Italiana
(STAR)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(6.8)

(9.6)

128.2

Rel (local)

(5.9)

(9.7)

87.9

52-week high/low

€16.35

€5.36

Business description

La Doria is the leading manufacturer of private-label preserved vegetables and fruit for the Italian (20% revenues) and international (80% revenues) market. It enjoys leading market share positions across its product ranges in the UK and Italy.

Next event

FY15 results

11 March 2016

Analysts

Sara Welford

+44 (0) 20 3077 5700

Paul Hickman

+44 (0)20 3681 2501

La Doria is a research client of Edison Investment Research Limited

La Doria reported another set of strong results. Its overarching objective is to reduce the volatility of the business and to improve visibility. To that end, the acquisition of Pa.fi.al is strategically very helpful. As disclosed at the H1 results, fears of an abundant tomato crop in the early part of the campaign resulted in lower sales prices being achieved for new contracts, and hence 2016 is likely to see a small reduction in EBITDA. We are leaving our forecasts unchanged.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/14

631.4

44.0

80.5

22.0

16.0

1.7

12/15e

743.2

49.7

88.8

23.0

14.5

1.8

12/16e

724.6

50.3

89.5

26.0

14.4

2.0

12/17e

746.3

55.4

99.4

26.0

12.9

2.0

Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments.

Strong Q3 results

La Doria reported another strong quarter. Q3 sales were up 20.3% vs the prior year. During 9M15, acquisitions contributed 12% to revenue growth and organic growth was 1.4%. Both the international and the domestic markets exhibited strong growth, and in terms of product segments the pulses and vegetables line and the red line were the main contributors to organic growth.

Seasonality being reduced

La Doria’s management is committed to reducing the volatility of its business and improving its margins, by diversifying away from seasonal production, which is affected by trends in agricultural raw materials. It has expanded the vegetable line over the past few years, and the acquisition of Pa.fi.al marked a step change within sauces. While the tomato business contributed c 65% to EBITDA in 2010, it accounted for less than 40% of EBITDA during H115 and, according to management, the sauces and vegetable lines now contribute 40% of EBITDA.

Valuation: Significant upside remains

Our DCF fair value is €15.90 per share or c 24% upside. We forecast a slight reduction in EBITDA in 2016 as outlined above, given initial fears about the 2015 tomato campaign, which led to a reduction in selling prices at the start of the annual pricing rounds. We believe La Doria remains an attractive proposition given the strength of its market position in the private-label segment, and management’s commitment to improve the margin and stem the volatility of the business by reducing reliance on seasonal agricultural raw materials.

Valuation

La Doria’s three-month share price performance has been +8%, significantly outperforming the MIB at -3%. On 2016 estimates, La Doria trades on a P/E of 14.4x and an EV/EBITDA of c 7.1x. As at 16 November (see Exhibit 1 below), this compares to the peer group of private-label and small-cap food manufacturers on 17.0x and 9.6x, or a discount of c 30%, which we believe is unwarranted.

Exhibit 1: Benchmark valuation of La Doria relative to peers

Market cap

PE (x)

EV/EBITDA (x)

Dividend yield (%)

(m)

2015e

2016e

2015e

2016e

2015e

2016e

Greencore

£1,344.1

18.7

16.5

13.6

12.1

1.9

2.1

Ebro Foods

€2,818.0

18.6

16.7

10.8

9.9

3.5

3.6

Parmalat

€4,405.0

22.6

19.5

9.0

7.8

0.8

1.2

Bonduelle

€795.2

12.0

11.0

6.7

6.1

1.8

1.9

Valsoia

€243.1

23.7

21.1

13.5

12.3

1.3

1.4

Peer-group average

19.1

17.0

10.7

9.6

1.9

2.0

La Doria

€332.9

12.1

12.0

6.7

6.8

2.1

2.4

Premium/(discount) to peer group (%)

(36.8)

(29.3)

(37.6)

(28.7)

15.2

19.1

Source: Edison Investment Research estimates, Bloomberg consensus. Note: Prices at 16 November 2015.

Our primary valuation methodology is DCF analysis, and we calculate a fair value of €15.90, or c 24% upside from the current level. This is based on our assumptions of a 1.0% terminal growth rate and a 9.0% terminal EBITDA margin. Our WACC of 6.0% is predicated on an equity risk premium of 4%, borrowing spread of 5% and beta of 0.8. Below, we show a sensitivity analysis to these assumptions and note that the current share price is discounting a terminal EBITDA margin of 7% (which compares to La Doria’s reported 2014 EBITDA margin of 9.5%) and a terminal growth rate of c 0.9%.

Exhibit 2: DCF sensitivity to terminal growth rate and EBITDA margin

Terminal growth

EBITDA margin

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

-2.0%

7.1

8.2

9.4

10.5

11.7

12.8

-1.0%

7.9

9.2

10.5

11.8

13.2

14.5

0.0%

8.9

10.5

12.0

13.6

15.1

16.7

1.0%

10.4

12.3

14.2

16.1

17.9

19.8

2.0%

12.6

15.0

17.4

19.8

22.2

24.6

3.0%

16.3

19.5

22.8

26.1

29.3

32.6

4.0%

23.9

28.9

33.9

38.9

44.0

49.0

Source: Edison Investment Research estimates

Key sensitivities

La Doria’s key sensitivities include:

input cost inflation on the agricultural commodities it processes to manufacture its products;

the supply/demand balance affecting the achievability of finished goods price inflation;

consumer consumption patterns and competitive pressures, particularly in Europe with a subdued economic environment, although La Doria and private label in general should benefit from any consumer downtrading; and

FX, specifically euro/sterling due to the consolidation of its trading subsidiary LDH, and euro/dollar due to purchasing beans and fruit concentrates.

However, in the short to medium term, we believe the outlook for these sensitivities is improving.

Exhibit 3: Financial summary

€m

2012

2013

2014

2015e

2016e

2017e

December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

578.9

604.4

631.4

743.2

724.6

746.3

Cost of Sales

(501.7)

(521.2)

(527.6)

(621.7)

(606.9)

(623.2)

Gross Profit

77.2

83.2

103.8

121.5

117.7

123.1

EBITDA

 

 

36.6

43.4

60.0

70.6

68.8

73.5

Operating Profit (before amort. and except.)

25.5

31.3

48.1

56.1

54.4

59.1

Intangible Amortisation

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

0.0

0.0

FX Gain / (loss)

(0.5)

2.5

0.3

0.0

0.0

0.0

Operating Profit

24.9

33.8

48.4

56.1

54.4

59.1

Net Interest

(4.6)

(4.7)

(4.1)

(6.4)

(4.1)

(3.7)

Profit Before Tax (norm)

 

 

20.9

26.6

44.0

49.7

50.3

55.4

Profit Before Tax (FRS 3)

 

 

20.3

29.2

44.3

49.7

50.3

55.4

Tax

(7.7)

(7.9)

(14.3)

(17.6)

(18.0)

(19.8)

Profit After Tax (norm)

12.6

19.7

29.9

32.0

32.3

35.6

Profit After Tax (FRS 3)

12.6

21.2

29.9

32.0

32.3

35.6

Average Number of Shares Outstanding (m)

28.5

29.5

30.6

31.0

31.0

31.0

EPS - normalised fully diluted (c)

 

 

25.3

45.1

80.5

88.8

89.5

99.4

EPS - (IFRS) (c)

 

 

27.5

52.5

81.5

88.8

89.5

99.4

Dividend per share (c)

6.0

12.0

22.0

23.0

26.0

26.0

Gross Margin (%)

13.3

13.8

16.4

16.3

16.2

16.5

EBITDA Margin (%)

6.3

7.2

9.5

9.5

9.5

9.8

Operating Margin (before GW and except.) (%)

4.4

5.2

7.6

7.5

7.5

7.9

BALANCE SHEET

Fixed Assets

 

 

115.1

114.8

179.6

179.1

176.7

172.3

Intangible Assets

4.0

4.0

10.6

10.0

9.3

8.6

Tangible Assets

99.2

98.9

146.6

146.7

145.0

141.3

Investments

12.0

11.9

22.3

22.3

22.3

22.3

Current Assets

 

 

321.0

336.1

374.0

416.6

441.3

477.0

Stocks

188.1

194.1

212.9

226.3

233.7

239.9

Debtors

90.8

89.0

100.3

116.7

112.3

115.7

Cash

19.6

27.9

41.1

54.0

75.7

101.7

Other

22.6

25.1

19.6

19.6

19.6

19.6

Current Liabilities

 

 

(236.6)

(214.8)

(229.1)

(246.8)

(243.8)

(247.2)

Creditors

(135.9)

(129.2)

(143.7)

(161.4)

(158.4)

(161.8)

Short term borrowings

(100.6)

(85.7)

(85.4)

(85.4)

(85.4)

(85.4)

Long Term Liabilities

 

 

(63.6)

(82.8)

(136.6)

(136.6)

(136.6)

(136.6)

Long term borrowings

(36.9)

(50.7)

(93.9)

(93.9)

(93.9)

(93.9)

Other long term liabilities

(26.7)

(32.1)

(42.6)

(42.6)

(42.6)

(42.6)

Net Assets

 

 

135.9

153.3

187.9

212.2

237.7

265.6

CASH FLOW

Operating Cash Flow

 

 

22.3

23.3

53.7

41.0

44.8

47.4

Net Interest

(4.6)

(4.7)

(4.1)

(6.4)

(4.1)

(3.7)

Tax

0.0

0.0

0.0

0.0

0.0

0.0

Capex

(12.0)

(9.1)

(17.2)

(14.0)

(12.0)

(10.0)

Acquisitions/disposals

0.0

0.0

(64.8)

0.0

0.0

0.0

Financing

0.0

0.0

0.0

0.0

0.0

0.0

Dividends

(2.2)

(4.4)

(6.3)

(7.7)

(6.9)

(7.7)

Other

0.9

2.8

8.6

0.0

0.0

0.0

Net Cash Flow

4.3

8.0

(30.2)

12.9

21.8

26.0

Opening net debt/(cash)

 

 

122.4

118.0

108.5

138.2

125.4

103.6

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

0.0

Other

0.1

1.5

0.5

0.0

0.0

0.0

Closing net debt/(cash)

 

 

118.0

108.5

138.2

125.4

103.6

77.6

Source: Edison Investment Research, Company data

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