CLI emerges

Centrale del Latte d'Italia 11 October 2016 Update

Centrale del Latte d'Italia

CLI emerges

Merger complete

Food & beverages

11 October 2016

Price

€2.77

Market cap

€39m

Net debt (€m) at 30 June 2016

21.7

Shares in issue

14.0m

Free float

30%

Code

CLI

Primary exchange

STAR (Borsa Italiana)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.5)

1.5

(18.3)

Rel (local)

(1.5)

(2.1)

6.6

52-week high/low

€3.98

€2.57

Business description

Centrale del Latte d’Italia produces and distributes fresh and long-life milk (UHT and ESL), and dairy products such as cream, yoghurt and cheese. It has a leading position in milk in the Piedmont region of northern Italy and it has expanded to the Veneto, Liguria and Tuscany regions.

Next events

Q316 results

14 November 2016

Analysts

Sara Welford

+44 (0) 20 3077 5700

Paul Hickman

+44 (0)20 3681 2501

Centrale del Latte d'Italia is a research client of Edison Investment Research Limited

The merger between Centrale del Latte di Torino (CLT) and Centrale del Latte di Firenze, Pistoia e Livorno (CLF) completed as expected on 30 September 2016. The new entity, Centrale del Latte d’Italia (CLI), has been formed and is now the third largest dairy/cheese player in Italy. Since the two businesses are complementary, it gives scope for synergies as new products can be distributed across both platforms. We maintain our forecasts and valuation, which have taken into account the merger.

Year
end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/15

98.3

0.46

0.30

6.00

N/A

2.2

12/16e

118.1

1.03

6.10

6.00

45.4

2.2

12/17e

183.0

3.01

13.97

6.00

19.8

2.2

12/18e

183.0

3.55

16.46

6.00

16.8

2.2

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

Transaction structure

The merger is an all-share transaction. The share swap ratio was one new ordinary share of CLT for 6.1965 CLF shares. CLT increased its share capital from €20.6m to €28.8m by issuing 4,000,020 new shares with a nominal value of €2.06. Subsequently, CLT changed its name to CLI. The transaction did not involve cash nor adjustment factors, and hence the regional and local government entities that previously owned CLF are now shareholders of CLI.

Expansion into Tuscany

CLT has been acquisitive over the past 20 years, slowly increasing its geographic reach beyond the Turin area and throughout three regions in Northern Italy. The acquisition of CLF is its largest yet and adds Tuscany as a new region. In addition, the Mukki brand (owned by CLF) is an attractive proposition and could be rolled out across CLT’s existing portfolio, and potentially beyond to international markets to which CLT has started exporting.

Valuation: Remains at fair value of €2.83

Our DCF model points to a fair value of €2.83 per share (unchanged) for the new entity, or 2% upside from the current share price. We calculate that CLI now trades at 19.8x FY17e P/E and 8.8x EV/EBITDA, with a 2.2% dividend yield. This is a premium of 10% on P/E and a discount of 7% on EV/EBITDA to the average of our peer group of dairy processors. We estimate that the CLF merger is significantly earnings enhancing (c 80% accretion in the first full year). Our forecasts remain unchanged as they already take account of the merger completing on 30 September.

New structure and ownership

We illustrate the new structure after the merger in Exhibit 1 below. We note that Centrale del Latte della Toscana and Centrale del Latte di Vicenza are 100% fully owned subsidiaries, while Odilla Chocolat is both substantially smaller and also only 50% owned by CLI.

Exhibit 1: New company structure

Source: Company data

The new shareholder structure for CLI is shown in Exhibit 2 below. We note the local government bodies that owned CLF have now become shareholders of the enlarged group.

Exhibit 2: Shareholder structure for CLI

Source: Company data

Valuation

Our DCF valuation remains unchanged at €2.83 per share as our forecasts already assumed the merger would complete on 30 September. On 2017 estimates, at the current share price, CLI trades at 19.8x P/E and 8.8x EV/EBITDA, with a 2.2% dividend yield. This is a premium of 10% on P/E and a discount of 7% on EV/EBITDA to the average of our peer group of dairy processors (although we note the peer group companies are much larger than CLI).

Exhibit 3: Benchmark valuation of CLI relative to peers

Market cap
(m)

P/E (x)

EV/EBITDA (x)

Dividend yield (%)

2016e

2017e

2016e

2017e

2016e

2017e

Valsoia

€180.6

20.0

18.7

10.7

9.7

1.5

1.6

Parmalat

€4,378.1

28.8

22.9

8.8

7.7

0.9

0.8

Dairy Crest

£916.9

17.6

16.1

12.3

11.4

3.6

3.8

Dean Foods

$1,467.6

10.4

10.6

4.9

4.9

2.2

2.4

Saputo

$17,854.1

24.8

22.2

14.7

13.5

1.3

1.4

Peer group average

20.3

18.1

10.3

9.4

1.9

2.0

CLI (post-merger)

€38.8

45.4

19.8

14.9

8.8

2.2

2.2

Premium/(discount) to peer group

123.5%

9.5%

45.0%

-6.6%

14.1

9.5

Source: Edison Investment Research estimates and Bloomberg consensus. Note: Prices at 10 October 2016.

Exhibit 4: Financial summary

€000s

2013

2014

2015

2016e

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

99,967.0

102,558.0

98,318.9

118,101.3

183,032.3

183,032.3

Cost of Sales

(80,923.4)

(82,415.2)

(78,796.3)

(94,177.1)

(145,222.7)

(145,039.7)

Gross Profit

19,043.7

20,142.8

19,522.6

23,924.2

37,809.6

37,992.6

EBITDA

 

 

4,910.6

5,844.8

4,850.6

6,445.2

10,903.8

11,269.9

Normalised operating profit

 

 

1,379.1

2,751.7

1,553.8

1,908.0

4,763.8

5,245.4

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

(249.9)

(134.0)

145.0

0.0

0.0

0.0

Share-based payments

0.0

0.0

0.0

0.0

0.0

0.0

Reported operating profit

1,129.1

2,617.6

1,698.8

1,908.0

4,763.8

5,245.4

Net Interest

(674.5)

(810.7)

(678.0)

(876.3)

(1,755.5)

(1,700.0)

Joint ventures & associates (post tax)

(3.9)

(4.2)

(417.6)

0.0

0.0

0.0

Exceptionals

1,646.2

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

2,346.8

1,936.7

458.2

1,031.7

3,008.3

3,545.4

Profit Before Tax (reported)

 

 

2,096.9

1,802.7

603.2

1,031.7

3,008.3

3,545.4

Reported tax

(827.0)

(1,011.6)

(86.6)

(361.1)

(1,052.9)

(1,240.9)

Profit After Tax (norm)

2,042.5

809.4

30.3

670.6

1,955.4

2,304.5

Profit After Tax (reported)

1,269.9

791.1

516.6

670.6

1,955.4

2,304.5

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

Discontinued operations

0.0

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

2,042.5

809.4

30.3

670.6

1,955.4

2,304.5

Net income (reported)

1,269.9

791.1

516.6

670.6

1,955.4

2,304.5

Basic average number of shares outstanding (m)

10

10

10

11

14

14

EPS - basic normalised (€)

 

 

0.20

0.08

0.00

0.06

0.14

0.16

EPS - diluted normalised (€)

 

 

0.20

0.08

0.00

0.06

0.14

0.16

EPS - basic reported (€)

 

 

0.13

0.08

0.05

0.06

0.14

0.16

Dividend (€)

0.06

0.06

0.06

0.06

0.06

0.06

Revenue growth (%)

N/A

2.6

(4.1)

20.1

55.0

0.0

Gross Margin (%)

19.0

19.6

19.9

20.3

20.7

20.8

EBITDA Margin (%)

4.9

5.7

4.9

5.5

6.0

6.2

Normalised Operating Margin

1.4

2.7

1.6

1.6

2.6

2.9

BALANCE SHEET

Fixed Assets

 

 

65,063.6

64,184.5

64,540.0

129,672.6

129,206.5

129,039.1

Intangible Assets

11,776.9

11,706.2

11,538.8

18,371.3

18,203.9

18,036.5

Tangible Assets

52,652.3

51,670.9

52,009.6

106,009.6

105,711.0

105,711.0

Investments & other

634.4

807.5

991.7

5,291.7

5,291.7

5,291.7

Current Assets

 

 

35,646.7

36,689.3

41,122.1

60,442.5

59,391.3

60,966.9

Stocks

3,473.1

3,437.8

3,540.6

7,931.8

6,525.5

6,517.2

Debtors

16,210.3

15,719.7

14,370.1

31,523.1

27,157.1

27,157.1

Cash & cash equivalents

7,822.1

10,050.8

12,192.4

6,968.7

11,689.8

13,273.7

Other

8,141.3

7,480.9

11,018.9

14,018.9

14,018.9

14,018.9

Current Liabilities

 

 

(34,211.0)

(33,231.9)

(35,004.4)

(65,737.2)

(67,444.6)

(67,388.3)

Creditors

(23,402.2)

(23,743.5)

(24,246.7)

(42,979.6)

(44,687.0)

(44,630.6)

Tax and social security

(333.3)

(467.7)

(356.9)

(356.9)

(356.9)

(356.9)

Short term borrowings

(10,475.4)

(9,020.8)

(10,400.7)

(22,400.7)

(22,400.7)

(22,400.7)

Other

0.0

0.0

0.0

0.0

0.0

0.0

Long Term Liabilities

 

 

(25,775.9)

(27,178.1)

(29,847.5)

(67,296.9)

(62,956.9)

(62,956.9)

Long term borrowings

(17,297.0)

(18,218.6)

(22,446.0)

(39,446.0)

(39,446.0)

(39,446.0)

Other long term liabilities

(8,478.9)

(8,959.5)

(7,401.5)

(27,850.9)

(23,510.9)

(23,510.9)

Net Assets

 

 

40,723.4

40,463.7

40,810.3

57,080.9

58,196.3

59,660.8

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

40,723.4

40,463.7

40,810.3

57,080.9

58,196.3

59,660.8

CASH FLOW

Op Cash Flow before WC and tax

4,910.6

5,844.8

4,850.6

6,445.2

10,903.8

11,269.9

Working capital

1,714.6

1,810.8

(1,942.2)

(3,959.2)

4,139.7

(48.1)

Exceptional & other

31.0

(128.7)

(1,262.2)

0.0

0.0

0.0

Tax

(827.0)

(1,011.6)

(86.6)

(361.1)

(1,052.9)

(1,240.9)

Net operating cash flow

 

 

5,829.2

6,515.3

1,559.6

2,124.9

13,990.6

9,980.9

Capex

(780.5)

(2,107.1)

(3,913.8)

(4,369.7)

(5,674.0)

(5,857.0)

Acquisitions/disposals

0.0

0.0

0.0

0.0

0.0

0.0

Net interest

(674.5)

(810.7)

(678.0)

(876.3)

(1,755.5)

(1,700.0)

Equity financing

0.0

0.0

0.0

0.0

0.0

0.0

Dividends

(200.0)

(600.0)

(600.0)

(600.0)

(840.0)

(840.0)

Other

(5,922.6)

2,293.5

5,031.4

0.0

0.0

0.0

Net Cash Flow

(1,748.4)

5,290.9

1,399.1

(3,721.2)

5,721.1

1,583.8

Opening net debt/(cash)

 

 

25,676.0

19,950.2

17,188.6

20,654.3

54,878.0

50,156.9

FX

0.0

0.0

0.0

0.0

0.0

0.0

Other non-cash movements

7,474.2

(2,529.3)

(4,864.8)

(30,502.6)

(1,000.0)

0.0

Closing net debt/(cash)

 

 

19,950.2

17,188.6

20,654.3

54,878.0

50,156.9

48,573.0

Source: Edison Investment Research, Centrale del Latte d'Italia accounts

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. 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 Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Centrale del Latte d'Italia 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2016. “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.

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London +44 (0)20 3077 5700

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London, WC1V 7EE

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New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

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New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. 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 Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Centrale del Latte d'Italia 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2016. “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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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