Navigating through tough times

La Doria 29 March 2019 Update
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La Doria

Navigating through tough times

FY18 results

Food & beverages

29 March 2019

Price

€7.83

Market cap

€243m

Net debt (€m) at 31 December 2018

112.3

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

(6.5)

0.9

(35.3)

Rel (local)

(8.2)

(12.0)

(31.1)

52-week high/low

€13.8

€7.8

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

Q119 results

14 May 2019

AGM

11 June 2019

H119 results

12 September 2019

9M19 results

13 November 2019

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

La Doria’s FY18 results were broadly in line with our expectations: organic revenues were up by a healthy 3.4%, but EBITDA margins were lower than expected, down 130bp due to increased production costs and a challenging competitive environment. Looking ahead, the company has released its updated three-year rolling plan and has cut guidance for the 2019–21 period. FY19 guidance has suffered the most, with target revenue cut by 3% and EBITDA by 19%. Management reiterated its 2018 plan to invest in the business in order to enhance its competitive position. Our fair value moves to €13.60 (from €15.40), to reflect our lower forecasts.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/17

669.1

39.7

98.1

23.0

8.0

2.9

12/18

687.9

33.1

88.2

18.0

8.9

2.3

12/19e

690.0

35.0

82.4

20.0

9.5

2.6

12/20e

717.6

39.7

93.5

21.0

8.4

2.7

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

FY18 as expected

FY18 witnessed strong volume growth, partly offset by a reduction in sales prices. EBITDA was down 12% as raw material cost inflation and higher costs associated with a tough tomato campaign negatively affected margins, particularly during Q4. The introduction of European duties on some imports from the US was also unhelpful. The environment remains competitive, with pressure on sales prices from La Doria’s major retail customers. The tomato-based business was the standout performer, with organic revenue growth of 7.9%, while the fruit line accelerated its decline (-10.5%) due to weak consumption.

Investment plan: Forging ahead with c €120m plan

In March 2018, La Doria announced an investment plan with the primary objective of improving revenues and margins by driving up volumes of its higher value-added products, and improving economies of scale. In addition, cost reductions would be targeted by streamlining production and building a new UK logistics platform. Management has forged ahead with the plan, closing the Acerra site, and the tough business environment underscores the necessity to remain competitive.

Valuation: Fair value of €13.60/share

We have cut our estimates to reflect the company’s updated guidance. Our DCF model now indicates a fair value of €13.60 per share (previously €15.40), or c 70% upside from the current share price. La Doria trades on 9.5x FY19e P/E, a c 35% discount to its private-label peer group. On EV/EBITDA it trades at 7.2x FY19e, a c 20% discount. We believe La Doria remains an attractive proposition, given the strength of its market position in the private-label segment, as well as management’s commitment to improving the stability and visibility of the business by reducing its reliance on the more volatile tomato line, while continuing to invest in the business in order to maintain its competitive edge.

FY18 results review and outlook

Consolidated revenues were up 2.8% to €687.9m year-on-year, or +3.4% at constant currency. EBITDA was down 12% to €52.8m, with the EBITDA margin down 130bp to 7.7%. EBIT was down 17% to €34.8m, with the margin down 110bp to 5.1%. Net debt was €112.3m vs €98.1m at the end of FY17 and €79.1m at the end of 9M18, following major investment of €45m during the course of the year, which was part of management’s investment plan.

We illustrate how the FY18 results fared vs our expectations in Exhibit 1 below.

Exhibit 1: Forecasts vs actual FY18 results (€m)

Forecast

Actual

% chg

Revenue

689.2

687.9

-0.2%

EBITDA

54.8

52.8

-3.5%

EBIT

39.8

34.8

-12.6%

PBT (pre-exceptional)

37.8

33.1

-12.4%

Net profit

27.6

27.3

-0.8%

Net debt

122.3

112.3

-8.3%

EBITDA margin

7.9%

7.7%

-0.3%

EBIT margin

5.8%

5.1%

-0.7%

Source: Edison Investment Research, La Doria data

The tomato-based line performed strongly, with organic sales up 7.9%. The vegetable line also showed good growth (+3.6%), while ‘other lines’ (ie the trading business that goes through UK subsidiary LDH) was up 5%. The sauces business was flat, with lower prices offsetting volume growth. The fruit line continued to suffer, with organic revenues down 10.5% due to weak consumption in both the domestic market and Britain.

Forecasts

La Doria has published its updated rolling three-year industrial strategy. Last year management initiated an investment plan to strengthen the business in the long term. The strategy centred on driving revenues by increasing capacity in the more value-added lines, in order to improve the mix, increase EBITDA margins and streamline production (for example with the closure of the Acerra site), thus reducing costs. Management is continuing with its plan, though it has trimmed its expectations in the shorter term in light of the tough trading environment. In particular, the introduction of European duties on imports of dried pulses from the US was unexpected, and the 2018 tomato campaign was the toughest in recent years. We illustrate the change in targets in Exhibit 2 below.

Exhibit 2: Old vs new company financial targets

€m

FY19e

FY20e

Old

New

% chg

Old

New

% chg

Revenue

712

691.0

(2.9%)

736

721.0

(2.0%)

EBITDA

65

53.0

(18.5%)

71

64.0

(9.9%)

EBIT

48

38.0

(20.8%)

54

45.0

(16.7%)

PBT

46

35.0

(23.9%)

52

43.0

(17.3%)

Net profit

34

26.0

(23.5%)

38

32.0

(15.8%)

Operating cash flow

45.0

39

(12.4%)

50.0

45

(10.0%)

Capex

28.0

56

99.3%

14.0

15

7.1%

FCF

17.0

-16

N/A

36.0

30

(16.7%)

Dividend payout (on parent company profit)

30%

30%

30%

30%

Net cash flow

3

(36)

N/A

21

18

(14.3%)

Net debt

117

148

26.5%

96

131

36.5%

Debt/EBITDA (x)

1.8

2.8

1.3

2.0

Gearing (x)

0.4

0.6

0.3

0.5

ROI (%)

12.4%

9.4%

(300)

13.7%

11.2%

(250)

ROE (%)

12.6%

10.5%

(210)

12.9%

11.8%

(110)

Source: La Doria data

We have trimmed our FY19–21 forecasts to reflect the updated industrial plan and the tough competitive environment. Our revenue forecasts fall by c 2–3%, while EBITDA reduces by c 10% due to the additional pressure of increasing costs. We now expect FY19 revenue and EBITDA to be broadly flat vs FY18, with the benefits of the investment plan (including the closure of the Acerra site, and the expansion of the Parma site) helping to offset higher costs. We note the gearing level forecast for FY19 has increased, with net debt/EBITDA peaking at 2.8x then falling back to 2.0x in FY20. The new investment should ensure La Doria is well placed to compete in a tough environment by becoming one of the lowest-cost operators, with fully automated warehouses and streamlined production.

Exhibit 3: Old vs new forecasts (€m)

FY19e

FY20e

Old

New

% chg

Old

New

% chg

Revenue

709.8

690.0

-2.8%

731.1

717.6

-1.9%

EBITDA

60.0

53.0

-11.6%

65.4

58.7

-10.3%

EBIT

43.0

37.0

-13.9%

48.4

41.7

-13.9%

PBT

41.0

35.0

-14.6%

46.4

39.7

-14.5%

Net profit

29.9

25.5

-14.6%

33.9

29.0

-14.5%

Net debt

119.4

147.9

23.9%

100.0

128.5

28.5%

Source: Edison Investment Research

Valuation

We illustrate La Doria’s valuation versus its peers in Exhibit 4 below. On 2019 estimates, La Doria currently trades at a c 40% discount on P/E, which we believe is unwarranted given the company’s balance sheet is conservatively managed. On EV/EBITDA, La Doria trades at a c 25% discount.

Exhibit 4: Benchmark valuation of La Doria relative to peers

Market cap

P/E (x)

EV/EBITDA (x)

Dividend yield (%)

(m)

2019e

2020e

2019e

2020e

2019e

2020e

Greencore

£868.3

12.4

10.6

9.3

8.9

3.1

3.4

Ebro Foods

£2,904.8

17.4

15.9

10.7

10.0

3.4

3.5

Bonduelle

€860.3

11.0

9.6

6.9

7.5

2.0

2.1

Valsoia

€139.8

18.0

N/A

9.9

N/A

2.5

N/A

Peer group average

14.7

12.0

9.2

8.8

2.7

3.0

La Doria

€242.7

9.5

8.4

7.2

6.5

2.6

2.7

Premium/(discount) to peer group

-35.3%

-30.3%

-21.9%

-26.2%

-6.9%

-10.5%

Source: Edison Investment Research estimates, Refinitiv. Note: Prices at 28 March 2019.

Our primary valuation methodology is DCF analysis and we calculate a fair value of €13.60/share (previously €15.40), or c 75% upside from the current level. This is based on our assumptions of a 1.0% 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 5% and beta of 0.8.

We have rolled forward our DCF to commence in 2019 and we have cut our terminal EBIT margin assumption to 7.0% (from 8.0%). Notwithstanding the lower assumed EBIT margin, our model still points to significant potential upside. 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 FY18 EBITDA margin of 7.7% and EBIT margin of 5.1%) and a terminal growth rate of c -0.3%.

Exhibit 2: 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%

6.8

7.4

7.9

8.5

9.1

9.6

-1.5%

7.3

8.0

8.6

9.3

9.9

10.6

-0.5%

8.1

8.8

9.5

10.3

11.0

11.8

0.5%

9.0

9.9

10.8

11.6

12.5

13.4

1.5%

10.3

11.4

12.5

13.6

14.6

15.7

2.5%

12.4

13.7

15.1

16.5

17.8

19.2

3.5%

15.8

17.7

19.5

21.4

23.2

25.1

Source: Edison Investment Research estimates

Exhibit 3: Financial summary

€m

2016

2017

2018

2019e

2020e

2021e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

653.1

669.1

687.9

690.0

717.6

739.1

Cost of Sales

(545.4)

(555.7)

(581.7)

(583.4)

(603.9)

(618.3)

Gross Profit

107.8

113.4

106.2

106.5

113.7

120.8

EBITDA

 

 

56.3

60.1

52.8

53.0

58.7

64.9

Operating Profit (before amort. and except.)

39.9

41.6

34.8

37.0

41.7

45.9

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)

8.9

0.2

3.2

0.0

0.0

0.0

Operating Profit

48.8

41.8

37.9

37.0

41.7

45.9

Net Interest

(2.7)

(1.9)

(1.7)

(2.0)

(2.0)

(2.0)

Profit Before Tax (norm)

 

 

37.3

39.7

33.1

35.0

39.7

43.9

Profit Before Tax (FRS 3)

 

 

46.2

39.9

36.3

35.0

39.7

43.9

Tax

(12.4)

(9.5)

(8.9)

(9.4)

(10.7)

(11.8)

Profit After Tax (norm)

33.7

30.4

27.3

25.5

29.0

32.0

Profit After Tax (FRS 3)

33.7

30.4

27.3

25.5

29.0

32.0

Average Number of Shares Outstanding (m)

31.0

31.0

31.0

31.0

31.0

31.0

EPS - normalised fully diluted (c)

 

 

108.8

98.1

88.2

82.4

93.5

103.3

EPS - (IFRS) (c)

 

 

108.8

98.1

88.2

82.4

93.5

103.3

Dividend per share (c)

18.0

23.0

18.0

20.0

21.0

22.0

Gross Margin (%)

16.5

16.9

15.4

15.4

15.8

16.3

EBITDA Margin (%)

8.6

9.0

7.7

7.7

8.2

8.8

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

6.1

6.2

5.1

5.4

5.8

6.2

BALANCE SHEET

Fixed Assets

 

 

173.3

174.0

203.5

246.0

254.2

254.4

Intangible Assets

10.0

6.1

5.5

4.8

4.1

3.4

Tangible Assets

143.9

149.9

175.9

216.6

215.3

205.0

Investments

19.4

18.0

22.1

24.5

34.7

45.9

Current Assets

 

 

367.8

394.2

419.4

378.1

403.0

437.7

Stocks

187.0

209.5

204.4

201.3

205.3

207.1

Debtors

103.9

106.5

110.2

107.6

109.1

110.9

Cash

62.8

66.7

86.8

51.2

70.6

101.7

Other

14.2

11.5

18.0

18.0

18.0

18.0

Current Liabilities

 

 

(187.9)

(209.8)

(242.3)

(234.4)

(238.5)

(241.3)

Creditors

(126.4)

(142.1)

(148.4)

(140.5)

(144.6)

(147.5)

Short term borrowings

(61.5)

(67.6)

(93.9)

(93.9)

(93.9)

(93.9)

Long Term Liabilities

 

 

(144.5)

(131.5)

(139.3)

(122.8)

(122.8)

(122.8)

Long term borrowings

(106.1)

(97.2)

(105.2)

(105.2)

(105.2)

(105.2)

Other long term liabilities

(38.3)

(34.3)

(34.1)

(17.6)

(17.6)

(17.6)

Net Assets

 

 

208.8

227.0

241.4

266.9

295.9

327.9

CASH FLOW

Operating Cash Flow

 

 

48.5

35.4

48.2

41.3

46.6

52.3

Net Interest

(2.7)

(1.9)

(1.7)

(2.0)

(2.0)

(2.0)

Tax

0.0

0.0

0.0

0.0

0.0

0.0

Capex

(12.4)

(17.6)

(46.5)

(56.0)

(15.0)

(8.0)

Acquisitions/disposals

3.2

(0.4)

0.0

0.0

0.0

0.0

Financing

0.0

0.0

0.0

0.0

0.0

0.0

Dividends

(11.5)

(7.7)

(9.6)

(8.9)

(10.1)

(11.2)

Other

(2.2)

(2.4)

(4.6)

(10.0)

(0.0)

0.0

Net Cash Flow

22.9

5.4

(14.1)

(35.6)

19.4

31.1

Opening net debt/(cash)

 

 

130.1

104.8

98.2

112.3

147.9

128.5

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

0.0

Other

2.4

1.2

(0.0)

(0.0)

0.0

(0.0)

Closing net debt/(cash)

 

 

104.8

98.2

112.3

147.9

128.5

97.4

Source: Edison Investment Research, La Doria data

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This report has been commissioned by La Doria and prepared and issued by Edison, in consideration of a fee payable 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.

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New Zealand

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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

1,185 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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