Centrale del Latte d’Italia |
Steady performance in a tough environment |
FY18 results |
Food & beverages |
21 March 2019 |
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 (CLI) had a good year in FY18, with total revenue up 1.2% and EBITDA margins up 40bp. The economic and consumer environment in Italy remains challenging. The export business continues to be a standout performer, albeit relatively small. We leave our underlying forecasts unchanged and our fair value remains €3.35 per share.
Year end |
Total revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/17 |
182.2 |
(0.03) |
(1.63) |
0.00 |
N/A |
N/A |
12/18 |
183.1 |
(0.13) |
(1.91) |
0.00 |
N/A |
N/A |
12/19e |
182.1 |
1.53 |
7.11 |
0.00 |
39.4 |
N/A |
12/20e |
183.9 |
1.96 |
9.08 |
0.00 |
30.8 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Performance continues to be mixed
Fresh milk performed very well in H118 but took a sudden turn during Q3 as overall consumption in the market declined. Despite management actions in the form of marketing initiatives to mitigate the problems, the downward trend continued in Q4. Conversely, UHT milk had a tricky initial nine months of the year but recovered in Q4. The yogurt segment also saw an improved performance as tough competition eased off. Overall, CLI’s Q4 turnover was up 1.2%, in line with the FY18 performance, despite the challenging consumer and economic environment across the entire food and beverage space.
Export and vegetable drinks growing rapidly
The prepared salads segment bounced back during Q4. The prepared salads plant was sold in exchange for a distribution agreement with Zerbinati, effective as of 1 September, which is starting to bear fruit. Bulk milk and cream is a by-product of dairy processing and is mostly influenced by seasonal supply and demand, but was up in the quarter. The export business continued to grow, albeit from a low base, and accounted for c 2% of turnover for the year. Vegetable-based drinks also continued to witness strong growth thanks to increased consumer demand for dairy alternatives. The division’s turnover grew 8.8% in FY18.
Valuation: Fair value of €3.35 per share
Our DCF model points to a fair value of €3.35 per share (unchanged), implying c 20% upside. We calculate that for FY19e, CLI now trades on a P/E of 39.4x and EV/EBITDA of 12.0x. On FY19e EV/EBITDA, CLI trades at a premium of c 10% to our peer group of dairy processors.
FY18 results review
CLI’s total FY18 value of production (total revenue) of €183.1m compares to €182.2m in FY17. Net revenue/sales came in at €180.3m vs €178.2m in FY17. FY18 EBITDA of €7.7m compares with €7.2m in FY17, with margins up 40bp to 4.3%. Margin recovery was a feature in both FY17 and FY18 after the implementation of price increases and better cost control.
We note that vegetable drinks remained on a growth trajectory through FY18 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 introduced innovative sales channels, such as its first Chinese virtual flagship store on Tmall, Alibaba’s largest B2C e-commerce platform.
Management changes
The board has announced two nominations:
■
Edoardo Pozzoli (aged 36), current corporate director, is nominated to the new position of director general to smooth the transition to the younger generation of family ownership.
■
Giuseppe Bodrero (aged 50) is nominated CFO and investor relations officer, with effect from 15 April 2019. He was previously CFO of Gruppo Caffarel (Italia), a division of Lindt. Incumbent CFO Vittorio Vaudagnotti will retire from the company.
Near-term estimate revisions
We leave our underlying forecasts unchanged. We trim our revenue forecasts: the adoption of IFRS 15 has caused the base to fall, but our underlying growth assumption remains unchanged at +1% for FY19 and FY20. We see upside to our forecast, given the positive momentum in the export business and the opening of new online and mobile channels during Q418. Our FY19 EBITDA forecast decreases to €8.5m (from €8.8m) but our underlying gross margin change remains +10bp. Due to the leverage in the business, the cut to PBT is more significant. We illustrate the changes to our key forecasts in Exhibit 1.
Exhibit 1: Old vs new near-term forecasts
2019e |
2020e |
|||||
€000s |
Old |
New |
% change |
Old |
New |
% change |
Revenue |
186,208 |
182,128 |
(2.2) |
188,070 |
183,950 |
(2.2) |
EBITDA |
8,750 |
8,453 |
(3.4) |
9,214 |
8,906 |
(3.3) |
PBT |
1,875 |
1,531 |
(18.3) |
2,311 |
1,955 |
(15.4) |
Net income (reported) |
1,219 |
995 |
(18.4) |
1,502 |
1,271 |
(15.4) |
EPS (reported), € |
0.09 |
0.07 |
(21.0) |
0.11 |
0.09 |
(17.5) |
Source: Edison Investment Research
Valuation
On 2020 estimates, CLI trades on a P/E of 30.8x and EV/EBITDA of 11.4x. The peer group average P/E is inflated by Dean Foods’ high figure and we note CLI trades at a premium to its other dairy peers, due to its high level of debt following the merger.
On FY19e EV/EBITDA, CLI trades at a premium of c 12% 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 (%) |
||||
2019e |
2020e |
2019e |
2020e |
2019e |
2020e |
||
Valsoia |
€151.0 |
21.2 |
N/A |
11.7 |
N/A |
2.3 |
N/A |
Dairy Crest |
£983.7 |
17.9 |
16.9 |
13.2 |
12.5 |
3.6 |
3.7 |
Dean Foods |
$274 |
-10.2 |
52.7 |
7.1 |
5.3 |
0.8 |
0.8 |
Saputo |
$17,249 |
26.7 |
22.1 |
N/A |
N/A |
1.5 |
1.6 |
Peer group average |
13.9 |
30.6 |
10.7 |
8.9 |
2.1 |
2.0 |
|
CLI |
€39.2 |
39.4 |
30.8 |
12.0 |
11.4 |
0.0 |
0.0 |
Premium/(discount) to peer group (%) |
183.1% |
0.9% |
12.5% |
28.2% |
N/A |
N/A |
Source: Edison Investment Research estimates and Bloomberg consensus. Note: Prices at 15 March 2019.
Our DCF is based on our (unchanged) assumptions of a 1.5% terminal growth rate and 3% terminal EBIT margin. Our WACC of 5.9% 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 the current share price is discounting a terminal growth rate of 1.5% with a terminal EBIT margin of 2.6% (which compares to Centrale del Latte di Torino’s pre-merger reported EBIT margin of 2.7% in 2014 and 1.6% in 2015, and CLI’s reported margin of 0.6% for 2018).
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% |
1.16 |
1.68 |
2.21 |
2.74 |
3.27 |
3.79 |
0.5% |
1.36 |
1.94 |
2.52 |
3.09 |
3.67 |
4.25 |
|
1.0% |
1.60 |
2.24 |
2.88 |
3.52 |
4.16 |
4.80 |
|
1.5% |
1.90 |
2.62 |
3.35 |
4.05 |
4.76 |
5.48 |
|
2.0% |
2.27 |
3.08 |
3.90 |
4.71 |
5.52 |
6.33 |
|
2.5% |
2.76 |
3.69 |
4.62 |
5.56 |
6.49 |
7.43 |
|
3.0% |
3.40 |
4.50 |
5.60 |
6.70 |
7.80 |
8.90 |
|
3.5% |
4.32 |
5.65 |
6.98 |
8.31 |
9.64 |
10.97 |
|
4.0% |
5.70 |
7.39 |
9.07 |
10.75 |
12.44 |
14.12 |
Source: Edison Investment Research
Exhibit 4: Financial summary
€000s |
2015 |
2016 |
2017 |
2018 |
2019e |
2020e |
2021e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||||
Revenue |
|
|
98,319 |
119,762 |
182,183 |
183,138 |
182,128 |
183,950 |
185,789 |
Cost of Sales |
(78,796) |
(98,652) |
(148,642) |
(148,894) |
(147,360) |
(148,649) |
(149,950) |
||
Gross Profit |
19,523 |
21,110 |
33,541 |
34,244 |
34,768 |
35,300 |
35,839 |
||
EBITDA |
|
|
4,851 |
2,905 |
7,245 |
7,739 |
8,453 |
8,906 |
9,367 |
Normalised operating profit |
|
|
1,554 |
(1,254) |
864 |
1,128 |
3,233 |
3,633 |
4,041 |
Amortisation of acquired intangibles |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
145 |
(355) |
(202) |
(279) |
0 |
0 |
0 |
||
Share-based payments |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Reported operating profit |
1,699 |
(1,609) |
661 |
849 |
3,233 |
3,633 |
4,041 |
||
Net Interest |
(678) |
(692) |
(996) |
(1,327) |
(1,776) |
(1,752) |
(1,722) |
||
Joint ventures & associates (post tax) |
(418) |
(143) |
107 |
74 |
74 |
74 |
74 |
||
Exceptionals |
0 |
13,903 |
(81) |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
458 |
(2,089) |
(25) |
(125) |
1,531 |
1,955 |
2,394 |
Profit Before Tax (reported) |
|
|
603 |
11,459 |
(309) |
(404) |
1,531 |
1,955 |
2,394 |
Reported tax |
(87) |
556 |
47 |
803 |
(536) |
(684) |
(838) |
||
Profit After Tax (norm) |
30 |
(2,153) |
(229) |
(267) |
995 |
1,271 |
1,556 |
||
Profit After Tax (reported) |
517 |
12,015 |
(261) |
398 |
995 |
1,271 |
1,556 |
||
Minority interests |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Discontinued operations |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
30 |
(2,153) |
(229) |
(267) |
995 |
1,271 |
1,556 |
||
Net income (reported) |
517 |
12,015 |
(261) |
398 |
995 |
1,271 |
1,556 |
||
Basic average number of shares outstanding (m) |
10 |
11 |
14 |
14 |
14 |
14 |
14 |
||
EPS - basic normalised (€) |
|
|
0.00 |
(0.20) |
(0.02) |
(0.02) |
0.07 |
0.09 |
0.11 |
EPS - diluted normalised (€) |
|
|
0.00 |
(0.20) |
(0.02) |
(0.02) |
0.07 |
0.09 |
0.11 |
EPS - basic reported (€) |
|
|
0.05 |
1.09 |
(0.02) |
0.03 |
0.07 |
0.09 |
0.11 |
Dividend (€) |
0.06 |
0.06 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
(4.1) |
21.8 |
52.1 |
0.5 |
(0.6) |
1.0 |
1.0 |
||
Gross Margin (%) |
19.9 |
17.6 |
18.4 |
18.7 |
19.1 |
19.2 |
19.3 |
||
EBITDA Margin (%) |
4.9 |
2.4 |
4.0 |
4.2 |
4.6 |
4.8 |
5.0 |
||
Normalised Operating Margin |
1.6 |
(1.0) |
0.5 |
0.6 |
1.8 |
2.0 |
2.2 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
64,540 |
129,773 |
132,731 |
142,807 |
143,050 |
143,296 |
143,545 |
Intangible Assets |
11,539 |
19,484 |
19,521 |
19,644 |
19,627 |
19,610 |
19,593 |
||
Tangible Assets |
52,010 |
107,335 |
110,817 |
120,434 |
120,694 |
120,957 |
121,222 |
||
Investments & other |
992 |
2,954 |
2,393 |
2,730 |
2,730 |
2,730 |
2,730 |
||
Current Assets |
|
|
41,122 |
60,457 |
78,611 |
67,468 |
67,743 |
69,168 |
70,880 |
Stocks |
3,541 |
7,698 |
9,114 |
9,971 |
9,869 |
9,955 |
10,042 |
||
Debtors |
14,370 |
28,209 |
31,449 |
30,114 |
30,415 |
30,719 |
31,026 |
||
Cash & cash equivalents |
12,192 |
9,521 |
25,475 |
13,028 |
9,604 |
10,640 |
11,957 |
||
Other |
11,019 |
15,030 |
12,573 |
14,355 |
17,855 |
17,855 |
17,855 |
||
Current Liabilities |
|
|
(35,004) |
(68,199) |
(77,372) |
(67,870) |
(67,393) |
(67,794) |
(68,198) |
Creditors |
(24,247) |
(42,910) |
(46,223) |
(46,275) |
(45,798) |
(46,199) |
(46,603) |
||
Tax and social security |
(357) |
(697) |
(914) |
(964) |
(964) |
(964) |
(964) |
||
Short term borrowings |
(10,401) |
(24,592) |
(30,234) |
(20,631) |
(20,631) |
(20,631) |
(20,631) |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(29,847) |
(58,489) |
(70,874) |
(78,683) |
(78,683) |
(78,683) |
(78,683) |
Long term borrowings |
(22,446) |
(45,159) |
(57,624) |
(66,195) |
(66,195) |
(66,195) |
(66,195) |
||
Other long term liabilities |
(7,402) |
(13,330) |
(13,250) |
(12,487) |
(12,487) |
(12,487) |
(12,487) |
||
Net Assets |
|
|
40,810 |
63,542 |
63,097 |
63,722 |
64,718 |
65,988 |
67,544 |
Minority interests |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Shareholders' equity |
|
|
40,810 |
63,542 |
63,097 |
63,722 |
64,718 |
65,988 |
67,544 |
CASH FLOW |
|||||||||
Op Cash Flow before WC and tax |
4,851 |
2,905 |
7,245 |
7,739 |
8,453 |
8,906 |
9,367 |
||
Working capital |
(1,942) |
(30) |
1,547 |
(1,438) |
(675) |
10 |
10 |
||
Exceptional & other |
(1,262) |
(15,092) |
(359) |
(840) |
74 |
74 |
74 |
||
Tax |
(87) |
556 |
47 |
803 |
(536) |
(684) |
(838) |
||
Net operating cash flow |
|
|
1,560 |
(11,661) |
8,480 |
6,264 |
7,316 |
8,306 |
8,613 |
Capex |
(3,914) |
(4,095) |
(9,849) |
(16,210) |
(5,464) |
(5,518) |
(5,574) |
||
Acquisitions/disposals |
0 |
0 |
0 |
(1) |
0 |
0 |
0 |
||
Net interest |
(678) |
(692) |
(996) |
(1,327) |
(1,776) |
(1,752) |
(1,722) |
||
Equity financing |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Dividends |
(600) |
(600) |
0 |
0 |
0 |
0 |
0 |
||
Other |
5,031 |
(1,131) |
21,437 |
291 |
0 |
0 |
0 |
||
Net Cash Flow |
1,399 |
(18,178) |
19,072 |
(10,984) |
77 |
1,035 |
1,317 |
||
Opening net debt/(cash) |
|
|
17,189 |
20,654 |
60,230 |
62,383 |
73,798 |
77,222 |
76,186 |
FX |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other non-cash movements |
(4,865) |
(21,397) |
(21,225) |
(432) |
(3,500) |
0 |
0 |
||
Closing net debt/(cash) |
|
|
20,654 |
60,230 |
62,383 |
73,798 |
77,222 |
76,186 |
74,869 |
Source: Edison Investment Research, company data
|
|