Centrale del Latte d'Italia |
Sales improvement |
FY17 results |
Food & beverages |
19 March 2018 |
Share price performance
Business description
Next events
Analysts
Centrale del Latte d'Italia is a research client of Edison Investment Research Limited |
Centrale del Latte d’Italia’s (CLI) price increases, implemented during H1, continue to drive revenue growth, with total revenue of €187m in FY17 above our forecast of €181m. Newer initiatives, such as vegetable-based drinks and the export business continue to generate good growth. We have raised our revenue forecasts to reflect the higher FY17 base, but trim our EBITDA forecast as the FY17 figure was below our forecast. Now that the CLF business has been owned for a full year, revenue synergies are coming through and there has been scope for some cost efficiencies. We therefore raise our medium-term EBIT margin growth by 10bp per annum to capture the potential for further cost containment. Our fair value rises to €3.30/share (from €3.25 previously).
Year end |
Total revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16 |
119.8 |
(2.09) |
(19.57) |
6.00 |
N/A |
1.8 |
12/17 |
187.5 |
(0.03) |
(1.63) |
6.00 |
N/A |
1.8 |
12/18e |
184.4 |
0.33 |
1.54 |
6.00 |
215.2 |
1.8 |
12/19e |
186.2 |
1.36 |
6.30 |
6.00 |
52.6 |
1.8 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Price increases still driving revenue growth
Price increases were implemented on 1 April 2017 to offset some cost inflation and were fully rolled out on 1 June. We believe organic growth was c 6% for FY17, which is impressive. 2017 represents the first full year of ownership of the CLF business and indeed, FY17 EBITDA was affected by one-off costs of €220,000.
Raw material costs rising again
We note raw material costs started to increase again towards the end of FY17. We therefore trim our EBITDA forecast for FY18, which has a sequential effect on subsequent years. Given the level of gearing, the cut is more significant at the EPS level. We believe there is some scope for ongoing cost containment as a result of the merger with CLF: we note that labour costs were down 120bp as a percentage of revenues in FY17, as any retiring personnel are not being replaced. As a result of this, we also raise our medium-term EBIT margin growth to 10bp per annum (from 0bp). We leave our terminal EBIT margin assumption unchanged at 3%.
Valuation: Fair value of €3.30 per share
Our DCF model points to a fair value of €3.30 per share (from €3.25), implying that the stock is fairly valued. We calculate that for FY19e CLI now trades on a P/E of 52.6x and EV/EBITDA of 12.5x, with a dividend yield of 1.8%. The P/E is inflated in part due to the high interest costs as a result of the elevated level of debt in the short term associated with the merger by incorporation with CLF in September 2016. On EV/EBITDA, CLI trades at a premium of c 45% to our peer group of dairy processors.
FY17 results review
CLI’s total FY17 value of production (total revenue) of €187.5m compares to €119.8m in FY16. Net revenue/sales came in at €183.4m vs €117.8m in FY16. The majority of the growth was of course due to the merger with CLF. FY17 EBITDA of €7.2m (or €7.5m in underlying terms, as discussed above) compares with €2.9m in FY16, with margins up 150bp to 3.9%. Margin recovery was a feature in FY17 following the implementation of the price increases and also better cost control.
We note that vegetable drinks had a strong performance in FY17 as consumers continue to embrace vegetarian, vegan and generally low-fat diets, while consumers with lactose allergies or intolerances seek alternative products. Export sales also more than doubled, as CLI expanded the number of markets into which it exports and also introduced innovative sales channels.
The group successfully completed a €15m bond issue during the latter part of FY17, which allows it to diversify its sources of debt. We note the terms were attractive, with a 3.25% coupon.
Near-term estimates revisions
We raise our revenue forecasts to reflect the FY17 revenues coming in above our forecast. We trim our margin forecasts in light of milk farmgate prices continuing to increase. Our FY18 EBITDA forecast decreases to €7.8m (from €8.9m) and net income reduces to €0.22m from €0.52m. We illustrate the changes to our key forecasts in Exhibit 1.
Exhibit 1: Old vs new near-term forecasts
€000s |
FY18e |
FY19e |
FY20e |
||||||
Old |
New |
% change |
Old |
New |
% change |
Old |
New |
% change |
|
Total revenue |
181,903 |
184,364 |
1.4 |
182,812 |
186,208 |
1.9 |
183,726 |
188,070 |
2.4 |
EBITDA |
8,852 |
7,834 |
(11.5) |
9,261 |
8,285 |
(10.5) |
9,675 |
8,744 |
(9.6) |
PBT |
804 |
331 |
(58.8) |
1,815 |
1,356 |
(25.3) |
2,215 |
1,763 |
(20.4) |
Net income (reported) |
523 |
215 |
(58.8) |
1,180 |
882 |
(25.3) |
1,439 |
1,146 |
(20.4) |
EPS (reported), € |
0.04 |
0.02 |
(58.8) |
0.08 |
0.06 |
(25.3) |
0.10 |
0.08 |
(20.4) |
Source: Edison Investment Research |
Valuation
CLI’s share price performance has been broadly in line with the FTSE MIB on a three-month and 12-month basis, although the share price has outperformed on a six-month basis following the announcement of the agreement with Alibaba. On 2019 estimates, CLI trades on a P/E of 52.6x and EV/EBITDA of 12.5x, with a dividend yield of 1.8%. The P/E is inflated due to the high level of debt following the merger, and hence the high interest costs.
On EV/EBITDA, CLI trades at a premium of c 45% to the average of our peer group of dairy processors, although we note that the companies in our peer group are much larger than CLI.
Exhibit 2: Benchmark valuation of CLI relative to peers
Market cap |
P/E (x) |
EV/EBITDA (x) |
Dividend yield (%) |
||||
2018e |
2019e |
2018e |
2019e |
2018e |
2019e |
||
Parmalat |
€156.6 |
17.8 |
N/A |
9.6 |
N/A |
1.7 |
N/A |
Dairy Crest |
€5,556.2 |
25.0 |
21.4 |
9.3 |
8.2 |
0.6 |
0.6 |
Dean Foods |
£773.5 |
14.1 |
13.5 |
10.4 |
10.2 |
4.3 |
4.5 |
Saputo |
$839.6 |
11.5 |
10.4 |
4.9 |
4.1 |
4.3 |
5.3 |
Peer group average |
17.3 |
15.5 |
9.1 |
8.3 |
2.7 |
3.1 |
|
CLI |
€46.3 |
215.2 |
52.6 |
13.2 |
12.5 |
1.8 |
1.8 |
Premium/(discount) to peer group (%) |
1,146.7% |
238.2% |
45.2% |
50.8% |
(33.7%) |
(40.6%) |
Source: Edison Investment Research estimates and Bloomberg consensus. Note: Prices at 8 March 2018.
Our DCF is based on our (unchanged) assumptions of a 1.5% terminal growth rate and 3% terminal EBIT margin. Our WACC of 5.8% is based on an equity risk premium of 4.5%, a borrowing spread of 5% and beta of 0.9. Below, we show a sensitivity analysis to these assumptions and note that the current share price is discounting a terminal growth rate of 1.5% with a terminal EBIT margin of 3% (which compares to CLT’s pre-merger reported EBIT margin of 2.7% in 2014 and 1.6% in 2015).
Exhibit 3: DCF sensitivity (€/share) to terminal growth rate and EBIT margin
Terminal EBIT margin |
|||||||
2.0% |
2.5% |
3.0% |
3.5% |
4.0% |
4.5% |
||
Terminal growth |
0.0% |
1.00 |
1.55 |
2.10 |
2.65 |
3.19 |
3.74 |
0.5% |
1.21 |
1.82 |
2.42 |
3.02 |
3.63 |
4.23 |
|
1.0% |
1.47 |
2.14 |
2.81 |
3.48 |
4.15 |
4.82 |
|
1.5% |
1.79 |
2.54 |
3.30 |
4.04 |
4.79 |
5.54 |
|
2.0% |
2.19 |
3.05 |
3.90 |
4.75 |
5.60 |
6.46 |
|
2.5% |
2.72 |
3.70 |
4.69 |
5.67 |
6.66 |
7.65 |
|
3.0% |
3.43 |
4.59 |
5.76 |
6.92 |
8.09 |
9.26 |
|
3.5% |
4.44 |
5.86 |
7.29 |
8.71 |
10.13 |
11.56 |
|
4.0% |
6.01 |
7.83 |
9.65 |
11.48 |
13.30 |
15.12 |
Source: Edison Investment Research
Exhibit 4: Financial summary
31-December |
€'000s |
2014 |
2015 |
2016 |
2017e |
2018e |
2019e |
2020e |
|
INCOME STATEMENT |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
Total revenue (value of production)* |
|
|
102,558 |
98,319 |
119,762 |
187,478 |
184,364 |
186,208 |
188,070 |
Cost of Sales |
(82,415) |
(78,796) |
(98,652) |
(153,937) |
(150,287) |
(151,604) |
(152,932) |
||
Gross Profit |
20,143 |
19,523 |
21,110 |
33,541 |
34,077 |
34,604 |
35,138 |
||
EBITDA |
|
|
5,845 |
4,851 |
2,905 |
7,245 |
7,834 |
8,285 |
8,744 |
Normalised operating profit |
|
|
2,752 |
1,554 |
(1,254) |
864 |
1,920 |
2,951 |
3,356 |
Amortisation of acquired intangibles |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
(134) |
145 |
(355) |
(202) |
0 |
0 |
0 |
||
Share-based payments |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Reported operating profit |
2,618 |
1,699 |
(1,609) |
661 |
1,920 |
2,951 |
3,356 |
||
Net Interest |
(811) |
(678) |
(692) |
(996) |
(1,696) |
(1,701) |
(1,700) |
||
Joint ventures & associates (post tax) |
(4) |
(418) |
(143) |
107 |
107 |
107 |
107 |
||
Exceptionals |
0 |
0 |
13,903 |
(81) |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
1,937 |
458 |
(2,089) |
(106) |
331 |
1,356 |
1,763 |
Profit Before Tax (reported) |
|
|
1,803 |
603 |
11,459 |
(309) |
331 |
1,356 |
1,763 |
Reported tax |
(1,012) |
(87) |
556 |
47 |
(116) |
(475) |
(617) |
||
Profit After Tax (norm) |
809 |
30 |
(2,153) |
(310) |
215 |
882 |
1,146 |
||
Profit After Tax (reported) |
791 |
517 |
12,015 |
(261) |
215 |
882 |
1,146 |
||
Minority interests |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Discontinued operations |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
809 |
30 |
(2,153) |
(310) |
215 |
882 |
1,146 |
||
Net income (reported) |
791 |
517 |
12,015 |
(261) |
215 |
882 |
1,146 |
||
Basic average number of shares outstanding (m) |
10 |
10 |
11 |
14 |
14 |
14 |
14 |
||
EPS - basic normalised (€) |
|
|
0.08 |
0.00 |
(0.20) |
(0.02) |
0.02 |
0.06 |
0.08 |
EPS - diluted normalised (€) |
|
|
0.08 |
0.00 |
(0.20) |
(0.02) |
0.02 |
0.06 |
0.08 |
EPS - basic reported (€) |
|
|
0.08 |
0.05 |
1.09 |
(0.02) |
0.02 |
0.06 |
0.08 |
Dividend (€) |
0.06 |
0.06 |
0.06 |
0.06 |
0.06 |
0.06 |
0.06 |
||
Revenue growth (%) |
2.6 |
(4.1) |
21.8 |
56.5 |
(1.7) |
1.0 |
1.0 |
||
Gross Margin (%) |
19.6 |
19.9 |
17.6 |
17.9 |
18.5 |
18.6 |
18.7 |
||
EBITDA Margin (%) |
5.7 |
4.9 |
2.4 |
3.9 |
4.2 |
4.4 |
4.6 |
||
Normalised Operating Margin |
2.7 |
1.6 |
-1.0 |
0.5 |
1.0 |
1.6 |
1.8 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
64,185 |
64,540 |
129,773 |
132,731 |
132,717 |
132,969 |
133,224 |
Intangible Assets |
11,706 |
11,539 |
19,484 |
19,521 |
19,507 |
19,493 |
19,479 |
||
Tangible Assets |
51,671 |
52,010 |
107,335 |
110,817 |
110,817 |
111,083 |
111,352 |
||
Investments & other |
808 |
992 |
2,954 |
2,393 |
2,393 |
2,393 |
2,393 |
||
Current Assets |
|
|
36,689 |
41,122 |
60,457 |
78,611 |
73,102 |
73,297 |
73,758 |
Stocks |
3,438 |
3,541 |
7,698 |
9,114 |
8,898 |
8,976 |
9,055 |
||
Debtors |
15,720 |
14,370 |
28,209 |
31,449 |
31,606 |
31,922 |
32,241 |
||
Cash & cash equivalents |
10,051 |
12,192 |
9,521 |
25,475 |
20,024 |
19,825 |
19,888 |
||
Other |
7,481 |
11,019 |
15,030 |
12,573 |
12,573 |
12,573 |
12,573 |
||
Current Liabilities |
|
|
(33,232) |
(35,004) |
(68,199) |
(77,372) |
(77,437) |
(77,842) |
(78,251) |
Creditors |
(23,744) |
(24,247) |
(42,910) |
(46,223) |
(46,288) |
(46,694) |
(47,103) |
||
Tax and social security |
(468) |
(357) |
(697) |
(914) |
(914) |
(914) |
(914) |
||
Short term borrowings |
(9,021) |
(10,401) |
(24,592) |
(30,234) |
(30,234) |
(30,234) |
(30,234) |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Long-term Liabilities |
|
|
(27,178) |
(29,847) |
(58,489) |
(70,874) |
(65,910) |
(65,910) |
(65,910) |
Long-term borrowings |
(18,219) |
(22,446) |
(45,159) |
(57,624) |
(57,624) |
(57,624) |
(57,624) |
||
Other long term liabilities |
(8,960) |
(7,402) |
(13,330) |
(13,250) |
(8,286) |
(8,286) |
(8,286) |
||
Net Assets |
|
|
40,464 |
40,810 |
63,542 |
63,097 |
62,472 |
62,514 |
62,820 |
Minority interests |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Shareholders' equity |
|
|
40,464 |
40,810 |
63,542 |
63,097 |
62,472 |
62,514 |
62,820 |
CASH FLOW |
|||||||||
Op Cash Flow before WC and tax |
5,845 |
4,851 |
2,905 |
7,245 |
7,834 |
8,285 |
8,744 |
||
Working capital |
1,811 |
(1,942) |
(30) |
1,547 |
124 |
12 |
11 |
||
Exceptional & other |
(129) |
(1,262) |
(15,092) |
(359) |
107 |
107 |
107 |
||
Tax |
(1,012) |
(87) |
556 |
47 |
(116) |
(475) |
(617) |
||
Net operating cash flow |
|
|
6,515 |
1,560 |
(11,661) |
8,480 |
7,949 |
7,928 |
8,245 |
Capex |
(2,107) |
(3,914) |
(4,095) |
(9,849) |
(5,900) |
(5,586) |
(5,642) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net interest |
(811) |
(678) |
(692) |
(996) |
(1,696) |
(1,701) |
(1,700) |
||
Equity financing |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Dividends |
(600) |
(600) |
(600) |
0 |
(840) |
(840) |
(840) |
||
Other |
2,293 |
5,031 |
(1,131) |
21,436 |
0 |
0 |
0 |
||
Net Cash Flow |
5,291 |
1,399 |
(18,178) |
19,071 |
(487) |
(199) |
63 |
||
Opening net debt/(cash) |
|
|
19,950 |
17,189 |
20,654 |
60,230 |
62,383 |
67,833 |
68,032 |
FX |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other non-cash movements |
(2,529) |
(4,865) |
(21,397) |
(21,224) |
(4,964) |
0 |
0 |
||
Closing net debt/(cash) |
|
|
17,189 |
20,654 |
60,230 |
62,383 |
67,833 |
68,032 |
67,969 |
Source: Edison Investment Research, company accounts. *Note: Total revenue as defined by the company: revenue from sales and services plus changes in inventories and other revenue and income.
|
|