Another strong set of results

La Doria 17 September 2020 Update
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La Doria

Another strong set of results

H120 results

Food & beverages

17 September 2020

Price

€11.46

Market cap

€353m

Net debt (€m) at 30 June 2020

89.2

Shares in issue

30.8m

Free float

37%

Code

LD

Primary exchange

Borsa Italia (STAR)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.8

2.0

17.7

Rel (local)

4.2

0.0

29.1

52-week high/low

€11.58

€6.22

Business description

La Doria is the leading manufacturer of private-label preserved vegetables and fruit for the Italian (18% of 2019 revenues) and international (82% of revenues) market. It enjoys leading market share positions across its product ranges in the UK, Italy, Germany and Australia.

Next events

9M20 results

12 November 2020

FY20 results

March 2021

Analysts

Sara Welford

+44 (0)20 3077 5700

Russell Pointon

+44 (0)20 3077 5700

La Doria is a research client of Edison Investment Research Limited

During Q2, La Doria continued to benefit from the shift in consumption caused by the COVID-19 pandemic, with more food consumed at home and only a slow and partial return to the horeca channel, to which La Doria has little exposure. As in Q1, revenue growth was entirely volume-led, which benefited margins. We expect the trend to persist until at least the end of the year, as consumers continue to favour eating at home while the pandemic is ongoing. We see upside to our forecasts, as La Doria benefits from the prolonged shift in consumption.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/18

687.9

33.1

88.2

18.0

13.0

1.6

12/19

717.7

32.7

64.0

18.0

17.9

1.6

12/20e

803.8

46.6

115.9

18.0

9.9

1.6

12/21e

779.7

45.0

111.8

19.0

10.3

1.7

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

H120 results demonstrate continued strength

H120 group revenue was €442m, up 23% on the prior year. The Sauces business was the standout performer, up 30% in revenue terms, and the ‘other’ (trading) line was up 33% as UK consumption of ambient food remained at elevated levels. All markets and segments witnessed growth, with the international business growing by 26%, while the domestic business grew by 19%. EBITDA was €34.2m, up 47% vs the prior year, with margins up 120bp to 7.7%. Once again, margin improvement was driven by both operating leverage and the benefits of the four-year investment plan, with increased efficiencies and lower costs. Net debt was €89m compared to €107m at end H119, and €129m at the end of Q120.

Upside to forecasts

We raise our forecasts slightly to reflect the continued good performance through Q2, although demand is slowly returning to more normal levels as the horeca (hotel, retail and catering) channel gains traction. The first phase of the tomato campaign has gone well, though agricultural yields in September are expected to be lower due to sub-optimal weather conditions in the prior months. While – as normal – negotiations are not yet complete, we expect FY21 profitability in the segment to improve, with increased pricing and a more positive industry backdrop, due to lower stocks and higher demand. We therefore see upside to our forecasts.

Valuation: Fair value of €15.50

Our DCF model indicates a fair value of €15.50 per share (previously €13.50), or c 30% upside to the current share price. On our updated estimates, La Doria trades on a P/E of 10.3x FY21e, a c 20% discount to its private-label peer group. On EV/EBITDA it trades at 7.7x FY21e, broadly in line with its peers. We believe La Doria remains an attractive proposition, given the strength of its market position in the private-label segment. Management remains committed to improving the stability of the business, while continuing to invest to maintain its competitive edge.

H120 results review and forecasts

Consolidated revenues were €442m, up 23% on the prior year. EBITDA was €34.2m, up 47% vs the prior year, with margins up 120bp to 7.7%. Group EBIT was €25.9m, vs €15.0m in H119, thus resulting in EBIT margin increasing 170bps to 5.9%. Net debt was €89m compared to €107m at end H119, and €129m at the end of Q120.

The Sauces business performed very strongly, up 30% in revenue terms, and the ‘other’ (trading) line was up 33% as UK consumption of ambient food remained at elevated levels. The tomato-based business was up 22%, the Pulses and Vegetables line was up 17%, and the Fruit line was up 8% during the period. All markets and segments witnessed growth, with the international business (83% of the H1 total) growing by 26%, while the domestic business grew by 19%. Once again, margin improvement was driven by both operating leverage and the benefits of the four-year investment plan, with increased efficiencies and lower costs.

We raise our forecasts slightly to reflect the continued good performance through Q2. Demand is clearly slowly returning to more normal levels as the horeca channel has opened following lockdowns, and consumer confidence about eating out has been increasing. The first phase (July and August) of the seasonal tomato campaign has gone well, with favourable weather rather than the extremes that affected the campaign in the previous year. In September, however, agricultural yields are expected to be lower – with reduced availability of fresh tomatoes to be processed – due to suboptimal climactic conditions in the prior months. Raw material costs will therefore be higher than forecast. Negotiations are not yet complete, and indeed the tomato campaign is still ongoing, but we expect profitability to improve in the segment in FY21 as the commercial landscape is more favourable than last year. We therefore see upside to our forecasts.

We forecast the usual seasonality to La Doria’s cash flows for FY20, and hence expect net debt to increase to €147m by end FY20 (from €89m at end H120 and little changed from the end 2019 level of €148.8m). From FY21, we expect capital expenditure to fall as La Doria’s four-year investment programme comes to an end and it starts to reap the rewards of its investments. We forecast strongly positive cash flows to contribute to net debt more than halving by the end of FY23 (to our forecast €52m).

Our forecasts are shown in Exhibit 1. As a reminder, we do not assume any further significant lockdowns in La Doria’s main markets.

Exhibit 1: New versus old forecasts

€m

2020e

2021e

2022e

Old

New

% chg

Old

New

% chg

Old

New

% chg

Revenue

789.4

803.8

1.8%

765.7

779.7

1.8%

781.0

795.2

1.8%

EBITDA

64.0

65.1

1.8%

64.4

65.5

1.8%

66.4

67.6

1.8%

EBIT

47.0

48.1

2.5%

45.4

46.5

2.6%

46.4

47.6

2.6%

PBT

45.0

46.6

3.7%

43.4

45.0

3.9%

44.4

46.1

3.8%

Net Profit

34.6

35.9

3.7%

33.4

34.7

3.9%

34.0

35.3

3.8%

Net Debt

157.6

147.4

-6.4%

120.4

115.6

-4.0%

85.2

84.0

-1.5%

EBITDA margin

8.1%

8.1%

0.0%

8.4%

8.4%

0.0%

8.5%

8.5%

0.0%

EBIT margin

6.0%

6.0%

0.0%

5.9%

6.0%

0.0%

5.9%

6.0%

0.0%

Source: Edison Investment Research


Valuation

We illustrate La Doria’s valuation versus its peers in Exhibit 2 below. On our 2021 estimates, La Doria currently trades at a c 20% discount on a P/E basis, which we believe is unwarranted given that the company’s balance sheet is conservatively managed. On EV/EBITDA, La Doria trades broadly in line with the peer group. As a result of its strong performance during the COVID-19 pandemic, La Doria has outperformed the peer group and its discount has narrowed, although we believe the discount could narrow further as the company continues to benefit from the shift in consumer preference to eating at home, and reaps the benefits of its four-year investment programme.

Exhibit 2: Benchmark valuation of La Doria relative to peers

Market cap

P/E (x)

EV/EBITDA (x)

Dividend yield (%)

(m)

2020e

2021e

2020e

2021e

2020e

2021e

Greencore

£511.5

20.8

10.4

9.7

7.5

0.9

2.9

Ebro Foods

€3,125.1

16.3

17.4

9.4

9.9

3.0

3.3

Bonduelle

€651.1

10.4

8.8

8.6

8.0

2.4

2.6

Valsoia

€132.7

18.0

17.3

9.3

8.9

3.1

3.1

Massimo Zanetti Beverage Group

€130.4

-35.9

10.9

8.0

5.4

0.0

4.1

Centrale del Latte d'Italia

€33.1

13.2

12.5

9.0

8.8

0.0

0.0

Newlat

€222.8

19.5

15.9

6.4

5.6

0.0

0.0

Peer group average*

16.4

13.3

8.6

7.7

1.3

2.3

La Doria

€358.4

10.0

10.3

7.8

7.7

1.6

1.6

Premium/(discount) to peer group

(39.0%)

(22.3%)

(9.8%)

0.1%

17.4%

(27.6%)

Source: Edison Investment Research estimates, Refinitiv. Note: Prices at 15 September 2020. *FY20e P/E average excludes Massimo Zanetti Beverage Group.

We have rolled forward our DCF to commence in 2021, so our fair value rises to €15.50 per share (from €13.50 previously). This is based on our assumptions of a 1.5% terminal growth rate and a 7.0% terminal EBIT margin. Our WACC of 6.4% is predicated on an equity risk premium of 4%, borrowing spread of 6% and beta of 0.8. Below, we show a sensitivity analysis to our assumptions and note that the current share price is discounting a terminal EBIT margin of 5.5% (which compares with La Doria’s FY19 EBITDA margin of 7.8% and EBIT margin of 4.8%, with the latter representing a trough level) and a terminal growth rate of 1.1%.

Exhibit 3: DCF sensitivity to terminal growth rate and EBIT margin (€/share)

EBIT margin

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

Terminal growth

-2.5%

8.1

8.7

9.3

9.9

10.6

11.2

-1.5%

8.7

9.4

10.1

10.8

11.5

12.2

-0.5%

9.5

10.3

11.2

11.9

12.8

13.6

0.5%

10.6

11.6

12.5

13.4

14.5

15.5

1.5%

12.1

13.3

14.4

15.5

16.8

18.0

2.5%

14.5

16.0

17.5

18.8

20.5

22.0

3.5%

18.4

20.5

22.5

24.3

26.6

28.6

Source: Edison Investment Research

Exhibit 4: Financial summary

€m

2018

2019

2020e

2021e

2022e

2023e

December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

687.9

717.7

803.8

779.7

795.2

819.1

Cost of Sales

(581.7)

(604.2)

(675.1)

(654.0)

(666.3)

(685.5)

Gross Profit

106.2

113.5

128.7

125.6

128.9

133.6

EBITDA

 

 

52.8

56.0

65.1

65.5

67.6

70.5

Operating Profit (before amort. and except.)

34.8

34.6

48.1

46.5

48.1

46.5

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)

3.2

(5.0)

0.0

0.0

0.0

0.0

Operating Profit

37.9

29.5

48.1

46.5

47.6

50.5

Net Interest

(1.7)

(1.8)

(1.5)

(1.5)

(1.5)

(1.5)

Profit Before Tax (norm)

 

 

33.1

32.7

46.6

45.0

46.1

49.0

Profit Before Tax (FRS 3)

 

 

36.3

27.7

46.6

45.0

46.1

49.0

Tax

(8.9)

(7.9)

(10.7)

(10.4)

(10.8)

(13.2)

Profit After Tax (norm)

27.3

19.9

35.9

34.7

35.3

35.8

Profit After Tax (FRS 3)

27.3

19.9

35.9

34.7

35.3

35.8

Average Number of Shares Outstanding (m)

31.0

31.0

31.0

31.0

31.0

31.0

EPS - normalised fully diluted (c)

 

 

88.2

64.0

115.9

111.8

113.8

115.3

EPS - (IFRS) (c)

 

 

88.2

64.0

115.9

111.8

113.8

115.3

Dividend per share (c)

18.0

18.0

18.0

19.0

20.0

20.0

Gross Margin (%)

15.4

15.8

16.0

16.1

16.2

16.3

EBITDA Margin (%)

7.7

7.8

8.1

8.4

8.5

8.6

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

5.1

4.8

6.0

6.0

6.0

6.0

BALANCE SHEET

Fixed Assets

 

 

203.5

246.0

261.5

266.5

270.7

275.1

Intangible Assets

5.5

5.1

4.4

3.7

3.0

2.3

Tangible Assets

175.9

221.6

225.3

219.0

211.7

204.4

Investments

22.1

19.3

31.7

43.7

55.9

68.3

Current Assets

 

 

419.4

384.4

400.3

434.5

467.8

504.9

Stocks

204.4

219.1

222.8

225.6

226.6

229.6

Debtors

110.2

109.8

120.6

120.1

120.9

122.9

Cash

86.8

42.0

43.4

75.3

106.9

138.8

Other

18.0

13.5

13.5

13.5

13.5

13.5

Current Liabilities

 

 

(242.3)

(246.6)

(242.0)

(246.7)

(249.1)

(254.9)

Creditors

(148.4)

(153.9)

(149.4)

(154.0)

(156.4)

(162.2)

Short term borrowings

(93.9)

(92.7)

(92.7)

(92.7)

(92.7)

(92.7)

Long Term Liabilities

 

 

(139.3)

(130.3)

(130.3)

(130.3)

(130.3)

(130.3)

Long term borrowings

(105.2)

(98.2)

(98.2)

(98.2)

(98.2)

(98.2)

Other long-term liabilities

(34.1)

(32.2)

(32.2)

(32.2)

(32.2)

(32.2)

Net Assets

 

 

241.4

253.6

289.4

323.9

359.1

394.7

CASH FLOW

Operating Cash Flow

 

 

48.2

38.7

35.4

57.5

57.5

58.0

Net Interest

(1.7)

(1.8)

(1.5)

(1.5)

(1.5)

(1.5)

Tax

0.0

0.0

0.0

0.0

0.0

0.0

Capex

(46.5)

(59.4)

(20.0)

(12.0)

(12.0)

(12.0)

Acquisitions/disposals

0.0

0.0

0.0

0.0

0.0

0.0

Financing

0.0

0.0

0.0

0.0

0.0

0.0

Dividends

(9.6)

(6.9)

(12.6)

(12.1)

(12.4)

(12.5)

Other

(4.6)

(7.0)

(0.0)

0.0

0.0

0.0

Net Cash Flow

(14.1)

(36.5)

1.3

31.8

31.6

32.0

Opening net debt/(cash)

 

 

98.2

112.3

148.8

147.4

115.6

84.0

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

0.0

Other

(0.0)

0.0

0.0

(0.0)

0.0

0.0

Closing net debt/(cash)

 

 

112.3

148.8

147.5

115.6

84.0

52.0

Source: Company data, Edison Investment Research


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This report has been commissioned by La Doria and prepared and issued by Edison, in consideration of a fee payable by La Doria. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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General disclaimer and copyright

This report has been commissioned by La Doria and prepared and issued by Edison, in consideration of a fee payable by La Doria. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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