Pandemic windfall

La Doria 23 November 2020 Update
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La Doria

Pandemic windfall

9M20 results

Food & beverages

23 November 2020

Price

€12.68

Market cap

€388m

Net debt at 30 September (€m)

105.2

Shares in issue

30.6m

Free float

37%

Code

LD

Primary exchange

Borsa Italia (STAR)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.2)

15.5

43.3

Rel (local)

(13.6)

5.7

54.3

52-week high/low

€13.72

€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

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

The group has continued to grow strongly in Q3, albeit at a slightly reduced pace compared to H1. Revenues for the first nine months (9M) were significantly higher than last year due to higher volumes as consumers were at home, particularly during Q2. Margins expanded owing to higher operating leverage and improved industrial efficiency as the 2018 investment plan is almost complete and starting to bear fruit. We continue to see upside to our forecasts, as La Doria benefits from the prolonged pandemic-related 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

14.4

1.4

12/19

717.7

32.7

64.0

18.0

19.8

1.4

12/20e

839.7

53.8

133.5

18.0

9.5

1.4

12/21e

814.5

52.0

129.2

19.0

9.8

1.5

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

9M20 results demonstrate continued strength

Group revenues for 9M20 were €633.4m, up 18.9% on 9M19, while Q3 revenues were €191.6m (+9.9% y-o-y). The 9M EBITDA was €56.5m (+40.5% on 9M19), with margins up 130bp. Q3 EBITDA was €22.4m (+31.8%), with margins up 200bp. Net debt was €105.2m, versus €89m at end H120. All segments and geographies contributed to the excellent growth, which was driven by increased demand owing to greater at-home consumption and winning new contracts with strategic clients.

Raising forecasts

The outlook is positive as renewed temporary restrictions on the horeca (hotel, restaurant and catering) segment are once again stimulating at-home consumption, so Q4 will be another strong quarter for the company. Although the economic environment is uncertain, consumption is likely to return to more normal levels once restrictions are lifted. This should lead to lower volumes in FY21, although pricing in the all-important annual negotiations has been strong and we expect group revenues to be only c 3% lower. While La Doria’s benefit from operational gearing is likely to reduce as consumption normalises, its cost-cutting efforts via the investment plan – in particular those at LDH – will continue to benefit the bottom line. We raise our FY20 forecasts to reflect the strong Q3 and expectations of a similar performance in Q4. Our forecasts for FY21 and beyond also increase as we believe the pandemic has caused a structural increase in at-home consumption.

Valuation: Fair value of €17.00 per share

Our DCF model indicates a fair value of €17.00 per share (previously €15.50), or c 20% upside from current levels. On our estimates, La Doria trades on a P/E of 9.8x FY21e, a c 30% discount to its private-label peer group. On EV/EBITDA it trades at 7.5x FY21e, broadly in line with its peers. We believe La Doria remains an attractive proposition, given its strong market position in the private label segment. Management remains committed to improving both the product mix and the stability of the business, while maintaining its competitive edge.

9M20 results and forecasts

Consolidated revenues for 9M20 were €633.4m, up 19% on the prior year. As expected, the growth in Q3 decelerated to +9.9% with revenues at €192m. The 9M EBITDA was €56.5m, up 40.5% vs the prior year, with margins up 130bp to 8.9%. Q3 EBITDA was €22.4m (+31.8%), with margins up 200bp to 11.7%. Group EBIT was €43.5m, versus €27m in 9M19, resulting in EBIT margin increasing 180bp to 6.9%. Net debt was €105.2m compared to €135m at end 9M19 and €89m at the end of H120.

Both the base business and the trading activities of the LDH subsidiary (which operates in the UK) reported excellent growth, with the latter witnessing 26% revenue growth during 9M20. This was once again mainly volume driven.

Although La Doria has not updated its business plan, we raise our forecasts to reflect the continued good performance through Q3. Demand is again elevated as the horeca channel has closed in many markets. The seasonal tomato campaign resulted in the overall fresh tomato crop volume in southern Italy being in line with the 2019 campaign. This was below market expectations, and hence caused an increase in raw material costs. However, coupled with low inventory levels and higher demand levels owing to the pandemic, this resulted in a more favourable commercial landscape, so we believe price increases are likely and this should benefit FY21 profitability in the segment. La Doria’s other segments should also benefit from sustained demand in FY21 owing to the pandemic, and in the longer term due to the change in consumer behaviour (eg increased at-home consumption caused by more flexible working arrangements and more hours worked from home).

We forecast the usual seasonality to La Doria’s cash flows for FY20 and expect net debt to increase to €130.3m by end FY20 (from €105.2m at end 9M20 and below 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 €43m).

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

803.8

839.7

4.5%

779.7

814.5

4.5%

795.2

822.6

3.4%

EBITDA

65.1

72.3

10.9%

65.5

72.5

10.7%

67.6

74.1

9.5%

EBIT

48.1

55.3

14.8%

46.5

53.5

15.0%

47.6

54.1

13.5%

PBT

46.6

53.8

15.2%

45.0

52.0

15.5%

46.1

52.6

14.0%

Net profit

35.9

41.4

15.2%

34.7

40.1

15.5%

35.3

40.2

14.0%

Net debt

147.4

130.3

-11.7%

115.6

101.0

-12.6%

84.0

74.1

-11.8%

EBITDA margin

8.1%

8.6%

0.5%

8.4%

8.9%

0.5%

8.5%

9.0%

0.5%

EBIT margin

6.0%

6.6%

0.6%

6.0%

6.6%

0.6%

6.0%

6.6%

0.6%

Source: Edison Investment Research

Valuation

We illustrate La Doria’s valuation versus its peers in Exhibit 2 below. On our 2021 estimates, La Doria trades at a c 30% discount on a P/E basis, which we believe is unwarranted given the company’s balance sheet is conservatively managed. On an EV/EBITDA measure, 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

£513.8

27.8

12.1

10.3

7.8

0.4

2.8

Ebro Foods

€ 2,856.8

14.6

15.8

8.7

9.2

3.3

3.6

Bonduelle

€ 644.3

10.7

9.4

7.1

6.5

2.4

2.3

Valsoia

€ 143.9

17.3

18.2

9.3

9.7

2.8

2.8

Centrale del Latte d'Italia

€ 33.4

13.3

12.6

8.7

8.5

0.0

0.0

Newlat

€ 219.3

14.4

14.4

4.8

4.9

0.0

0.0

Peer group average*

16.3

13.8

8.1

7.8

1.5

1.9

La Doria

€ 394.3

9.5

9.8

7.5

7.5

1.4

1.5

Premium/(discount) to peer group

(41.7%)

(28.5%)

(7.5%)

(3.5%)

(4.9%)

(22.7%)

Source: Edison Investment Research estimates, Refinitiv. Note: Prices at 20 November 2020.

Our DCF is based on our (unchanged) 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 the current share price is discounting a terminal EBIT margin of 6.0% (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 0.3%.

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%

9.3

10.0

10.6

11.2

11.9

12.5

-1.5%

10.0

10.7

11.4

12.1

12.9

13.6

-0.5%

10.8

11.7

12.5

13.3

14.2

15.0

0.5%

12.0

13.0

14.0

14.9

16.0

17.0

1.5%

13.5

14.7

15.9

17.0

18.3

19.6

2.5%

16.0

17.6

19.1

20.5

22.2

23.7

3.5%

20.2

22.3

24.4

26.3

28.6

30.7

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

839.7

814.5

822.6

834.9

Cost of Sales

(581.7)

(604.2)

(703.5)

(681.6)

(687.6)

(697.1)

Gross Profit

106.2

113.5

136.1

132.9

135.0

137.9

EBITDA

 

 

52.8

56.0

72.3

72.5

74.1

76.0

Operating Profit (before amort. and except.)

34.8

34.6

55.3

53.5

54.1

56.0

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

55.3

53.5

54.1

56.0

Net Interest

(1.7)

(1.8)

(1.5)

(1.5)

(1.5)

(1.5)

Profit Before Tax (norm)

 

 

33.1

32.7

53.8

52.0

52.6

54.5

Profit Before Tax (FRS 3)

 

 

36.3

27.7

53.8

52.0

52.6

54.5

Tax

(8.9)

(7.9)

(12.4)

(12.0)

(12.4)

(14.7)

Profit After Tax (norm)

27.3

19.9

41.4

40.1

40.2

39.8

Profit After Tax (FRS 3)

27.3

19.9

41.4

40.1

40.2

39.8

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

133.5

129.2

129.7

128.4

EPS - (IFRS) (c)

 

 

88.2

64.0

133.5

129.2

129.7

128.4

Dividend per share (c)

18.0

18.0

18.0

19.0

20.0

20.0

Gross Margin (%)

15.4

15.8

16.2

16.3

16.4

16.5

EBITDA Margin (%)

7.7

7.8

8.6

8.9

9.0

9.1

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

5.1

4.8

6.1

6.6

6.6

6.6

BALANCE SHEET

Fixed Assets

 

 

203.5

246.0

262.4

268.5

273.9

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

32.6

45.7

59.1

68.3

Current Assets

 

 

419.4

384.4

421.7

450.3

485.7

520.0

Stocks

204.4

219.1

221.6

221.5

230.3

233.5

Debtors

110.2

109.8

125.9

125.4

125.0

125.2

Cash

86.8

42.0

60.6

89.9

116.8

147.8

Other

18.0

13.5

13.5

13.5

13.5

13.5

Current Liabilities

 

 

(242.3)

(246.6)

(259.9)

(255.5)

(256.7)

(257.2)

Creditors

(148.4)

(153.9)

(167.2)

(162.8)

(164.0)

(164.5)

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

293.8

333.0

372.5

407.6

CASH FLOW

Operating Cash Flow

 

 

48.2

38.7

54.5

56.8

54.5

58.4

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)

(14.5)

(14.0)

(14.1)

(13.9)

Other

(4.6)

(7.0)

(0.0)

0.0

0.0

0.0

Net Cash Flow

(14.1)

(36.5)

18.5

29.3

26.9

31.0

Opening net debt/(cash)

 

 

98.2

112.3

148.8

130.3

101.0

74.1

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

130.3

101.0

74.1

43.1

Source: Edison Investment Research, company 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 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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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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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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