Tough times ahead

La Doria 23 March 2020 Update
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La Doria

Tough times ahead

FY19 results

Food & beverages

23 March 2020

Price

€8.19

Market cap

€254m

Net debt (€m) at 31 December 2019

148.8

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

(10.2)

(10.6)

2.8

Rel (local)

42.5

36.0

39.8

52-week high/low

€10.20

€6.22

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

Q120 results

13 May 2020

H120 results

10 September 2020

9M 20 results

12 November 2020

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 has reported a good set of FY19 results, with like-for-like growth of 3.8% and EBITDA margins up 10bp. The outlook for 2020 is more subdued: increased costs in the red line will cause EBITDA margins to suffer although they are still expected to be up, while the Sauces business is now expected to see EBITDA margins decline due to increased raw material costs. As expected, management has published its new rolling three-year business plan, which is strategically in line with the prior plan, which provided for €138m of investment. Although it is still early days, La Doria is complying with all government directives regarding the COVID-19 outbreak. So far, there has not been any adverse impact, and demand has in fact increased both domestically and internationally. Our fair value reduces to €13/share from €14 previously as we cut our EBITDA forecasts to reflect the updated guidance.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/18

687.9

33.1

88.2

18.0

9.3

2.2

12/19

717.7

32.7

64.0

18.0

12.8

2.2

12/20e

732.0

36.7

91.1

18.0

9.0

2.2

12/21e

754.0

40.9

101.5

19.0

8.1

2.3

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

Good FY19 performance, more challenging FY20

FY19 results were strong, with impressive international growth of 6%, while domestic markets (18% of sales) were down 3%. The competitive environment remains challenging as retailers continue to exert downward pressure on pricing. Raw material costs are increasing, as tomato costs are up following the 2019 seasonal tomato campaign, semi-finished tomato product and other ingredient costs are also up.

No negative effects from Coronavirus impact so far

It is still too early to assess the full impact of the Covid-19 pandemic, but so far La Doria has witnessed a surge in demand for many of its products, which are everyday staples with a long shelf life. The company is complying with government orders and has introduced policies to reduce the contagion risk among its employees, but its factories are continuing to operate.

Valuation: Fair value of €13.00/share

Our DCF model indicates a fair value of €13.00 per share (previously €14.00), or c 60% upside from the current share price. La Doria trades on a P/E of 9.0x FY20e, a c 30% discount to its private-label peer group. On EV/EBITDA it trades at 6.3x FY20e, a c 15% discount. We believe La Doria remains an attractive proposition, given the strength of its market position in the private-label segment. Management remains committed to improving the stability of the business, while continuing to invest to maintain its competitive edge.

FY19 results review and outlook

Consolidated revenues were up 4.3% to €717.7m year-on-year, or +3.8% at constant currency. EBITDA was up 6% to €56m, with the EBITDA margin up 10bp to 7.8%. EBIT was down 1% to €34.6m, with the margin down 30bp to 4.8% due to higher depreciation and amortisation, and higher provisions. Net debt was €148.8m vs €112.3m at the end of FY18 and €135.0m at the end of 9M19. As a reminder, the increase in net debt was due to the planned investment – detailed in the industrial plan – to upgrade La Doria’s business capabilities in order to remain cost-competitive. 2019 witnessed the installation of a new line for the production of easy-open lids for cans, a new Sauces line, and also significant investment in the subsidiary LDH, as construction began on a highly-automated logistics platform in the UK.

We illustrate how the FY19 results fared vs our expectations in Exhibit 1 below.

Exhibit 1: Forecasts vs actual FY19 results (€m)

Forecast

Actual

% change

Revenue

690.0

717.7

4.0%

EBITDA

53.0

56.0

5.7%

EBIT

37.0

34.6

-6.6%

PBT (pre-exceptional)

35.0

32.7

-6.4%

Net profit

25.5

19.9

-22.3%

Net debt

147.9

148.8

0.6%

EBITDA margin

7.7%

7.8%

0.1%

EBIT margin

5.4%

4.8%

-0.5%

Source: Edison Investment Research, La Doria data

The pulses and vegetables line performed strongly, with organic sales up 8.8%. The ready-made sauces and fruit lines also showed good growth (+4.8% and 4.1%, respectively), while ‘other lines’ (ie the trading business that goes through UK subsidiary LDH) was up 3.2%. The tomato-based line was flat, due to weakness in Italy.

Coronavirus update

The Covid-19 emergency has led to a spike in demand over the past few weeks, both in Italy and in other markets. The company is following all government directives and has introduced specific measures to reduce the contagion risk for its employees. In addition, anybody who can work from home is being asked to do so. The global spread of Covid-19 is affecting economic activities globally, and La Doria’s management correctly states that the effects and evolution of this crisis are unforeseeable. That said, in the shorter term La Doria’s results should be buoyed by the increased demand caused by consumers stockpiling ambient and long shelf-life food staples and the increased consumption derived from more consumers eating at home rather than in horeca establishments.

Forecasts

As usual with its full year results, La Doria has published its updated rolling three-year business plan. Two years ago, 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, thus reducing costs. Management continues with its industrial plan, which included €138m of investment in the business, though it has trimmed its expectations in the shorter term in light of the tough competitive environment and higher production costs. In particular, the 2019 tomato campaign resulted in higher tomato and semi-finished tomato procurement costs. These will adversely affect profitability in FY20, together with meat costs that are also higher (for more detail on the outcome of the 2019 seasonal tomato campaign, see here). Looking ahead to FY21, management expects the competitive retail environment to remain tough, but margins are still expected to expand. We illustrate the change in targets in Exhibit 2 below.

Exhibit 2: Old vs new company financial targets

€m

2020e

2021e

Old

New

% chg

Old

New

% chg

Revenue

721

732

1.5%

742

753

1.5%

EBITDA

64

55

(14.1%)

70

63

(10.0%)

EBIT

45

37

(17.8%)

48

42

(12.5%)

PBT

43

36

(16.3%)

47

40

(14.9%)

Net Profit

32

28

(12.5%)

35

31

(11.4%)

Operating cash flow

45

25

(44.4%)

51

54

5.9%

Capex

15

20

33.3%

8

12

50.0%

FCF

30

5

(83.3%)

43

42

(2.3%)

Dividend payout (on parent company profit)

30%

30%

30%

30%

Net cash flow

18

(8)

(144.4%)

29

27

(6.9%)

Net debt

131

157

19.8%

101

129

27.7%

Debt/EBITDA (x)

2.0

2.9

45.0%

1.5

2.0

33.3%

Gearing (x)

0.5

0.6

0.3

0.4

ROI

11.2%

8.8%

(240)

12.2%

10.1%

(210)

ROE

11.8%

10.5%

(130)

11.8%

10.7%

(110)

Source: La Doria data

We have adjusted our FY20–22 forecasts to reflect the updated guidance and the tough competitive environment. Our revenue forecasts are up 2%, while EBITDA reduces by c 5% due to the additional pressure of increasing costs. Our tax rate reduces from 28% to 23% in line with company guidance. We note FY20 operating cash flow is lower than other years due to a planned increase in working capital, which should unwind over the following two years. We have also included FY23 forecasts (see Exhibit 6).

Exhibit 3: Old vs new forecasts

2020e

2021e

2022e

€m

Old

New

% chg

Old

New

% chg

Old

New

% chg

Revenue

717.6

732.0

2.0%

739.1

754.0

2.0%

761.3

776.6

2.0%

EBITDA

58.7

55.7

-5.1%

64.9

61.9

-4.7%

67.6

64.5

-4.6%

EBIT

41.7

38.7

-7.2%

45.9

42.9

-6.6%

47.6

44.5

-6.5%

PBT

39.7

36.7

-7.6%

43.9

40.9

-6.9%

45.6

42.5

-6.8%

Net Profit

29.0

28.2

-2.5%

32.0

31.5

-1.8%

33.3

32.5

-2.3%

Net Debt

128.5

153.1

19.2%

97.4

122.6

25.9%

69.5

90.5

30.2%

Source: Edison Investment Research

Valuation

We illustrate La Doria’s valuation versus its peers in Error! Reference source not found. below. We have expanded our peer group to include a wider group of Italian-listed food companies. On 2020 estimates, La Doria currently trades at a c 30% 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 15% discount.

Exhibit 4: 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

£597.6

9.4

7.3

6.3

5.8

0.6

0.6

Ebro Foods

£2,770.1

19.6

16.3

10.0

9.1

1.2

1.1

Bonduelle

€ 641.0

8.8

9.2

6.2

6.4

0.5

0.5

Valsoia

€ 89.5

N/A

13.8

N/A

5.9

N/A

0.9

Massimo Zanetti Beverage Group

€ 136.8

N/A

7.1

N/A

5.2

4.5

4.6

Centrale del Latte d'Italia

€ 34.3

N/A

N/A

N/A

16.5

N/A

0.0

Newlat

€ 218.5

N/A

24.9

N/A

7.0

N/A

0.0

Peer group average*

12.6

13.1

7.5

8.0

1.7

1.1

La Doria

€ 253.9

9.0

8.1

6.3

6.1

2.3

2.4

Premium/(discount) to peer group

(28.6%)

(38.4%)

(15.4%)

(24.0%)

36.3%

123.6%

Source: Edison Investment Research estimates, Refinitiv. Note: Prices at 20 March 2020. *FY20e average excludes Centrale del Latte d'Italia.

Our primary valuation methodology is DCF analysis and we calculate a fair value of €13.00/share (previously €14.00) or c 60% upside from the current level. This is based on our assumptions of a 1.0% terminal growth rate and a 6.5% terminal EBIT margin. We have cut the latter assumption from 7.0% in light of the structurally tough competitive environment. Our WACC of 6.4% is predicated on an equity risk premium of 4.5%, borrowing spread of 6% and beta of 0.8.

We have rolled forward our DCF to commence in 2020, and 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 FY19 EBITDA margin of 7.8% and EBIT margin of 4.8%) and a terminal growth rate of c -2.3%.

Exhibit 5: 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

7.5

8.1

8.7

9.3

9.9

-1.5%

7.5

8.2

8.8

9.5

10.2

10.9

-0.5%

8.2

9.0

9.9

10.7

11.5

12.3

0.5%

9.3

10.3

11.2

12.1

13.1

14.0

1.5%

10.8

11.9

13.1

14.2

15.4

16.6

2.5%

13.0

14.5

16.0

17.4

18.9

20.4

3.5%

16.8

18.8

20.8

22.8

24.8

26.8

Source: Edison Investment Research estimates

Exhibit 6: Financial summary

€m

2018

2019

2020e

2021e

2022e

2023e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

687.9

717.7

732.0

754.0

776.6

799.9

Cost of Sales

(581.7)

(604.2)

(618.5)

(633.2)

(651.5)

(670.2)

Gross Profit

106.2

113.5

113.5

120.7

125.1

129.7

EBITDA

 

 

52.8

56.0

55.7

61.9

64.5

67.2

Operating Profit (before amort. and except.)

34.8

34.6

38.7

42.9

38.7

42.9

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)

3.2

(5.0)

0.0

0.0

0.0

0.0

Operating Profit

37.9

29.5

38.7

42.9

44.5

47.2

Net Interest

(1.7)

(1.8)

(2.0)

(2.0)

(2.0)

(2.0)

Profit Before Tax (norm)

 

 

33.1

32.7

36.7

40.9

42.5

45.2

Profit Before Tax (FRS 3)

 

 

36.3

27.7

36.7

40.9

42.5

45.2

Tax

(8.9)

(7.9)

(8.4)

(9.4)

(10.0)

(12.2)

Profit After Tax (norm)

27.3

19.9

28.2

31.5

32.5

33.0

Profit After Tax (FRS 3)

27.3

19.9

28.2

31.5

32.5

33.0

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

91.1

101.5

104.9

106.5

EPS - (IFRS) (c)

 

 

88.2

64.0

91.1

101.5

104.9

106.5

Dividend per share (c)

18.0

18.0

18.0

19.0

20.0

20.0

Gross Margin (%)

15.4

15.8

15.5

16.0

16.1

16.2

EBITDA Margin (%)

7.7

7.8

7.6

8.2

8.3

8.4

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

5.1

4.8

5.3

5.3

5.7

5.7

BALANCE SHEET

Fixed Assets

 

 

203.5

246.0

268.4

266.8

265.7

265.2

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

38.6

44.1

50.9

58.5

Current Assets

 

 

419.4

384.4

385.0

423.3

456.0

491.2

Stocks

204.4

219.1

223.9

225.4

224.1

224.5

Debtors

110.2

109.8

109.8

116.1

118.0

120.0

Cash

86.8

42.0

37.8

68.3

100.4

133.1

Other

18.0

13.5

13.5

13.5

13.5

13.5

Current Liabilities

 

 

(242.3)

(246.6)

(231.7)

(242.6)

(246.2)

(251.9)

Creditors

(148.4)

(153.9)

(139.1)

(150.0)

(153.5)

(159.2)

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

291.3

317.2

345.2

374.2

CASH FLOW

Operating Cash Flow

 

 

48.2

38.7

27.6

55.5

57.5

58.3

Net Interest

(1.7)

(1.8)

(2.0)

(2.0)

(2.0)

(2.0)

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)

(9.9)

(11.0)

(11.4)

(11.6)

Other

(4.6)

(7.0)

(0.0)

0.0

0.0

0.0

Net Cash Flow

(14.1)

(36.5)

(4.3)

30.5

32.1

32.8

Opening net debt/(cash)

 

 

98.2

112.3

148.8

153.1

122.6

90.5

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

153.1

122.6

90.5

57.7

Source: Edison Investment Research, company data


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Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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.

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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

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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