La Doria — Building for the future

Consumer

La Doria

Building for the future

H118 results

Food & beverages

24 September 2018

Price	€11.96
Market cap	€370m

Net debt (€m) at 30 June 2018		64.4

Shares in issue	31.0m
Free float	37%
Code	LD

Primary exchange	Borsa Italia (STAR)
Secondary exchange	N/A

Share price performance

%	1m	3m	12m
Abs	18.4	7.4	(5.8)
Rel (local)	14.5	7.7	(2.0)

52-week high/low

€17.5

€9.6

Business description

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

Next events

9m 18 results

13 November 2018

Analysts

Sara Welford	+44 (0)20 3077 5700
Paul Hickman	+44 (0)20 3681 2501

consumer@edisongroup.com

Edison profile page

La Doria is a research client of Edison Investment Research Limited

La Doria’s results again demonstrate the strength of the business and the underlying strategy. Despite a continued challenging macroeconomic backdrop and a tough trading environment, sales were up 2.5% during the period, and 3.7% at constant currency, entirely driven by volume growth. As ever, the important factor at this stage in the year is the outcome of the seasonal campaigns. With regard to tomatoes, the 2018 campaign was critical due to adverse weather conditions, which caused volumes to fall and affected quality, hence production costs will be up. The fruit campaign was characterised by higher costs for peaches and nectarines, whereas apricot, apple and pear prices are expected to remain stable. We leave our estimates unchanged at this stage.

Year end	Revenue (€m)	PBT* (€m)	EPS* (c)	DPS (c)	P/E (x)	Yield (%)
12/16	653.1	37.3	108.8	18.0	11.0	1.5
12/17	669.1	39.7	98.1	23.0	12.2	1.9
12/18e	689.2	42.2	99.3	24.0	12.0	2.0
12/19e	709.8	45.5	107.1	25.0	11.2	2.1

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

Less efficient tomato campaign

The heavy rains from the second half of August affected crop quantity and quality, and the processing efficiency of the tomato campaign. Overall volumes are now expected to be down 10-15% at a national level, and packaging and energy costs are expected to be up. Overall tomato costs are also likely to be higher, and – coupled with lower volumes – fixed cost leverage is likely to dent profitability.

H118 results in line

Sales growth was broad based, with most segments contributing. Sales were down in the fruit line, which witnessed a drop in both volume and pricing. The sauces line was stable, as volume growth was offset by targeted price reductions to gain market share. EBITDA was broadly flat, implying a 20bp reduction in margin. At this stage, with customer negotiations still ongoing across the red line, pulses and the fruit line, we leave our estimates unchanged. We continue to forecast broadly flat EBITDA for FY18, but the lower efficiency of the tomato campaign and lower crop quality does add a small downside risk to our estimates. We note that the four-year investment plan is under way, with a €24m investment during H1.

Valuation: Fair value unchanged at €16.10/share

Based on our forecasts, our DCF model points to a fair value of €16.10 per share (unchanged), or c 35% upside from the current share price. La Doria trades on 11.2x FY19e P/E, a c 40% discount to its private-label peer group, whereas on 7.9x FY19e EV/EBITDA it trades at a c 10% discount to the peer group. 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 stability and visibility of the business by reducing reliance on the more volatile tomato line.

H1 results review

Consolidated revenue for H118 of €349.3m was 2.5% ahead of the prior year and up 3.7% in constant currency, driven by volume growth at an impressive 4.5% and a slight reduction in pricing. Strength came from the trading side of the business, and to a lesser extent from the red and vegetable lines. Group EBITDA was €24.4m, and the EBITDA margin of 7.0% was 20bps below last year, as lower sales prices weighed on margins. Reported end-June net debt was €64.4m, a reduction from the 30 June 2017 level of €73.7m; end-2017 net debt was €98.1m and, due to the seasonality of the business, we forecast the usual cash outflow in H2. In addition, in H2 we expect to see more of the capital expenditure associated with the new business plan, and hence we forecast net debt of €119.8m at the end of 2018. As a reminder, €24m was invested in H1. By way of update, the Acerra plant is scheduled for closure at the end of September 2018. The new line of sauces in Parma and cans in Sarno are being built, and building of the new logistics centre for the UK LDH business should start in H2. The four-year industrial plan aims at increasing production capacity in categories with stronger growth potential and higher margin (such as pasta sauces), the improvement of industrial and logistics efficiency in order to reduce overall cost and become more competitive.

The annual tomato campaign runs from the end of July to the end of September/start of October. Typically, La Doria negotiates annual contracts with its customers, and hence prices, just before or during the processing season, which gives it good visibility on its profitability outlook through to Q3 of the following year, when the next pricing rounds occur. Therefore, we expect Q3 to continue with the same trajectory as H1, and the 2018 seasonal campaign will begin to take effect from Q4. Both customer negotiations and physical crop harvesting are still ongoing, and hence the final result is still unknown. As things stand, we expect the lower quality of the 2018 crop and the lower efficiency of production, coupled with the higher packaging materials and energy costs to offset the increase in finished goods pricing.

The situation for pulses is also expected to become slightly tougher, as increased tariffs on US pulses have contributed to a general uplift in global pulse costs. Thus we expect the pulses and vegetables market to witness an overall increase in pricing.

The sauces business had a good H118 and we expect volume growth to continue, although the pricing environment is likely to remain competitive. The fruit and fruit juices segment is likely to remain under pressure, as increased fruit prices and severe competition continue to be a problem in the domestic Italian market.

We leave our forecasts unchanged at this stage, as we forecast broadly stable EBITDA for FY18 and await the final outcome of the campaign and customer negotiations. Given the continued tough macroeconomic backdrop and the increase in the cost of production as a result of the tomato campaign, we see a small level of downside risk.

Valuation

La Doria’s three-month share price performance has been +7%, outperforming the FTSEMIB, which was down 5%. On 2019 estimates, La Doria trades on a P/E of 11.2x, which compares to the peer group of private-label and small-cap food manufacturers on 18.2x, or a discount of c 40%, which we believe is unwarranted. On EV/EBITDA, La Doria trades on 7.9x FY19e estimates, which is at a c 10% discount to the peer group.

Exhibit 1: Benchmark valuation of La Doria relative to peers

	Market cap	P/E (x)		EV/EBITDA (x)		Dividend yield (%)
	(m)	2018e	2019e	2018e	2019e	2018e	2019e
Greencore	£1,400.5	13.4	12.4	9.2	8.4	2.9%	3.0%
Ebro Foods	€ 2,894.2	16.8	15.4	10.3	9.3	3.4%	3.6%
Parmalat	€ 5,426.3	40.1	30.5	n/a	n/a	0.6%	0.8%
Bonduelle	€ 915.2	12.3	10.9	7.0	6.4	1.8%	1.9%
Valsoia	€ 158.7	23.0	21.7	11.6	10.6	2.2%	2.2%
Peer group average		21.1	18.2	9.5	8.7	2.2%	2.3%
La Doria	€ 370.8	12.0	11.2	8.6	7.9	2.0%	2.1%
Premium/(discount) to peer group		-42.9%	-38.5%	-9.5%	-8.9%	-7.3%	-8.8%

Source: Edison Investment Research estimates, Bloomberg consensus. Note: Prices at 14 September 2018.

Our primary valuation methodology is DCF analysis, and we calculate a fair value of €16.10/share (unchanged), or c 35% upside from the current level. This is based on our assumptions of a 1.0% terminal growth rate and an 8.0% terminal EBIT 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 EBIT margin of 7.5% (which compares to La Doria’s FY17 EBITDA margin of 9.0% and EBIT margin of 6.2%) and a terminal growth rate of c -0.3%.

Exhibit 2: DCF sensitivity to terminal growth rate and EBIT margin (€/share)

		EBIT margin
		6.5%	7.0%	7.5%	8.0%	8.5%	9.0%
Terminal growth	-2.5%	8.5	9.0	9.6	10.2	10.8	11.3
	-1.5%	9.2	9.7	10.5	11.1	11.8	12.4
	-0.5%	10.1	10.7	11.6	12.3	13.0	13.8
	0.5%	11.3	12.0	13.0	13.9	14.8	15.6
	1.5%	13.0	13.8	15.1	16.1	17.2	18.2
	2.5%	15.5	16.6	18.2	19.5	20.8	22.2
	3.5%	19.8	21.2	23.4	25.2	27.0	28.8

Source: Edison Investment Research estimates

Exhibit 3: Financial summary

	€m	2015	2016	2017	2018e	2019e	2020e	2021e
December		IFRS	IFRS	IFRS	IFRS	IFRS	IFRS	IFRS
PROFIT & LOSS
Revenue		748.3	653.1	669.1	689.2	709.8	731.1	753.1
Cost of Sales		(616.9)	(545.4)	(555.7)	(575.1)	(589.6)	(604.3)	(618.7)
Gross Profit		131.5	107.8	113.4	114.0	120.3	126.8	134.4
EBITDA		77.6	56.3	60.1	59.2	64.5	70.1	76.7
Operating Profit (before amort. and except.)		61.0	39.9	41.6	44.2	47.5	53.1	58.7
Intangible Amortisation		0.0	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	0.0
FX Gain / (loss)		3.6	8.9	0.2	0.0	0.0	0.0	0.0
Operating Profit		64.6	48.8	41.8	44.2	47.5	53.1	58.7
Net Interest		(3.6)	(2.7)	(1.9)	(2.0)	(2.0)	(2.0)	(2.0)
Profit Before Tax (norm)		57.4	37.3	39.7	42.2	45.5	51.1	56.7
Profit Before Tax (FRS 3)		61.0	46.2	39.9	42.2	45.5	51.1	56.7
Tax		(16.1)	(12.4)	(9.5)	(11.4)	(12.3)	(13.8)	(15.3)
Profit After Tax (norm)		44.8	33.7	30.4	30.8	33.2	37.3	41.4
Profit After Tax (FRS 3)		44.8	33.7	30.4	30.8	33.2	37.3	41.4

Average Number of Shares Outstanding (m)		31.0	31.0	31.0	31.0	31.0	31.0	31.0
EPS - normalised fully diluted (c)		144.6	108.8	98.1	99.3	107.1	120.3	133.5
EPS - (IFRS) (c)		144.6	108.8	98.1	99.3	107.1	120.3	133.5
Dividend per share (c)		28.0	18.0	23.0	24.0	25.0	26.0	27.0

Gross Margin (%)		17.6	16.5	16.9	16.5	16.9	17.3	17.8
EBITDA Margin (%)		10.4	8.6	9.0	8.6	9.1	9.6	10.2
Operating Margin (before GW and except.) (%)		8.1	6.1	6.2	6.4	6.7	7.3	7.8

BALANCE SHEET
Fixed Assets		177.6	173.3	174.0	220.0	236.0	246.1	253.6
Intangible Assets		10.6	10.0	6.1	5.4	4.7	4.0	3.3
Tangible Assets		143.3	143.9	149.9	196.6	208.3	206.0	199.7
Investments		23.7	19.4	18.0	18.0	23.0	36.1	50.6
Current Assets		398.8	367.8	394.2	358.9	372.1	402.1	438.7
Stocks		199.8	187.0	209.5	195.5	200.4	205.5	207.3
Debtors		107.7	103.9	106.5	106.8	110.0	113.3	116.7
Cash		77.9	62.8	66.7	45.0	50.1	71.8	103.2
Other		13.3	14.2	11.5	11.5	11.5	11.5	11.5
Current Liabilities		(220.7)	(187.9)	(209.8)	(200.5)	(203.2)	(205.9)	(208.5)
Creditors		(129.3)	(126.4)	(142.1)	(132.9)	(135.5)	(138.3)	(140.9)
Short term borrowings		(91.4)	(61.5)	(67.6)	(67.6)	(67.6)	(67.6)	(67.6)
Long Term Liabilities		(157.3)	(144.5)	(131.5)	(120.7)	(114.1)	(114.1)	(114.1)
Long term borrowings		(116.6)	(106.1)	(97.2)	(97.2)	(97.2)	(97.2)	(97.2)
Other long term liabilities		(40.7)	(38.3)	(34.3)	(23.5)	(16.8)	(16.8)	(16.8)
Net Assets		198.4	208.8	227.0	257.8	291.0	328.3	369.7

CASH FLOW
Operating Cash Flow		58.2	65.7	39.9	52.1	46.8	50.7	58.9
Net Interest		(3.6)	(2.7)	(1.9)	(2.0)	(2.0)	(2.0)	(2.0)
Tax		0.0	0.0	0.0	0.0	0.0	0.0	0.0
Capex		(8.4)	(13.0)	(18.7)	(61.0)	(28.0)	(14.0)	(11.0)
Acquisitions/disposals		(4.9)	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	0.0
Dividends		(9.3)	(8.4)	(7.6)	(10.8)	(11.6)	(13.1)	(14.5)
Other		(23.3)	(16.3)	(5.2)	0.0	0.0	0.0	0.0
Net Cash Flow		8.7	25.3	6.6	(21.7)	5.1	21.7	31.4
Opening net debt/(cash)		138.2	130.1	104.8	98.2	119.8	114.7	93.0
HP finance leases initiated		0.0	0.0	0.0	0.0	0.0	0.0	0.0
Other		(0.6)	(0.1)	0.1	0.0	(0.0)	0.0	0.0
Closing net debt/(cash)		130.1	104.8	98.2	119.8	114.7	93.0	61.7

Source: Edison Investment Research, company data

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by La Doria and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Equities

Equities by Sector

Sectors

Thematics

Latest

Decarbonising the built environment – Green materials, greener buildings

The advertising ecosystem – Triangulating perspectives

JPMorgan European Discovery Trust – The power of small

Audiovisual

Latest

Halyk Bank in 60 seconds

bp — capital markets update (part 2)

Worldwide Healthcare Trust in 60 seconds

About Edison

About Edison

Careers

La Doria (MI: LD)

La Doria — Building for the future

Consumer

Consumer

Latest

Greggs — Sales growth slows as the country bakes

The Pebble Group — On track, with further tender offer

Oncodesign Precision Medicine — Precision therapies for resistant diseases

Oryzon Genomics — KOL event highlights vafidemstat potential in BPD

Henderson Far East Income — Positioned to benefit as Asia outperforms

More on La Doria

La Doria — Takeover likely

La Doria — Another strong quarter

La Doria — Looking ahead with confidence

La Doria — Storming ahead

Latest from the Consumer sector

Greggs — Sales growth slows as the country bakes

Moonpig — CEO leaves group in strong position

Topps Tiles — Aligning accounting treatment of CTD in FY25

Intralot — Strong underlying revenue growth in Q125

AJ Lucas Group — Positive momentum in drilling services

Subscribe to Edison