Centrale del Latte d’Italia
Written by
Centrale del Latte d'Italia |
CLI emerges |
Merger complete |
Food & beverages |
11 October 2016 |
Share price performance
Business description
Next events
Analysts
Centrale del Latte d'Italia is a research client of Edison Investment Research Limited |
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The merger between Centrale del Latte di Torino (CLT) and Centrale del Latte di Firenze, Pistoia e Livorno (CLF) completed as expected on 30 September 2016. The new entity, Centrale del Latte d’Italia (CLI), has been formed and is now the third largest dairy/cheese player in Italy. Since the two businesses are complementary, it gives scope for synergies as new products can be distributed across both platforms. We maintain our forecasts and valuation, which have taken into account the merger.
Year |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/15 |
98.3 |
0.46 |
0.30 |
6.00 |
N/A |
2.2 |
12/16e |
118.1 |
1.03 |
6.10 |
6.00 |
45.4 |
2.2 |
12/17e |
183.0 |
3.01 |
13.97 |
6.00 |
19.8 |
2.2 |
12/18e |
183.0 |
3.55 |
16.46 |
6.00 |
16.8 |
2.2 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Transaction structure
The merger is an all-share transaction. The share swap ratio was one new ordinary share of CLT for 6.1965 CLF shares. CLT increased its share capital from €20.6m to €28.8m by issuing 4,000,020 new shares with a nominal value of €2.06. Subsequently, CLT changed its name to CLI. The transaction did not involve cash nor adjustment factors, and hence the regional and local government entities that previously owned CLF are now shareholders of CLI.
Expansion into Tuscany
CLT has been acquisitive over the past 20 years, slowly increasing its geographic reach beyond the Turin area and throughout three regions in Northern Italy. The acquisition of CLF is its largest yet and adds Tuscany as a new region. In addition, the Mukki brand (owned by CLF) is an attractive proposition and could be rolled out across CLT’s existing portfolio, and potentially beyond to international markets to which CLT has started exporting.
Valuation: Remains at fair value of €2.83
Our DCF model points to a fair value of €2.83 per share (unchanged) for the new entity, or 2% upside from the current share price. We calculate that CLI now trades at 19.8x FY17e P/E and 8.8x EV/EBITDA, with a 2.2% dividend yield. This is a premium of 10% on P/E and a discount of 7% on EV/EBITDA to the average of our peer group of dairy processors. We estimate that the CLF merger is significantly earnings enhancing (c 80% accretion in the first full year). Our forecasts remain unchanged as they already take account of the merger completing on 30 September.
New structure and ownership
We illustrate the new structure after the merger in Exhibit 1 below. We note that Centrale del Latte della Toscana and Centrale del Latte di Vicenza are 100% fully owned subsidiaries, while Odilla Chocolat is both substantially smaller and also only 50% owned by CLI.
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Exhibit 1: New company structure |
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Source: Company data |
The new shareholder structure for CLI is shown in Exhibit 2 below. We note the local government bodies that owned CLF have now become shareholders of the enlarged group.
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Exhibit 2: Shareholder structure for CLI |
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Source: Company data |
Valuation
Our DCF valuation remains unchanged at €2.83 per share as our forecasts already assumed the merger would complete on 30 September. On 2017 estimates, at the current share price, CLI trades at 19.8x P/E and 8.8x EV/EBITDA, with a 2.2% dividend yield. This is a premium of 10% on P/E and a discount of 7% on EV/EBITDA to the average of our peer group of dairy processors (although we note the peer group companies are much larger than CLI).
Exhibit 3: Benchmark valuation of CLI relative to peers
Market cap |
P/E (x) |
EV/EBITDA (x) |
Dividend yield (%) |
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2016e |
2017e |
2016e |
2017e |
2016e |
2017e |
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Valsoia |
€180.6 |
20.0 |
18.7 |
10.7 |
9.7 |
1.5 |
1.6 |
Parmalat |
€4,378.1 |
28.8 |
22.9 |
8.8 |
7.7 |
0.9 |
0.8 |
Dairy Crest |
£916.9 |
17.6 |
16.1 |
12.3 |
11.4 |
3.6 |
3.8 |
Dean Foods |
$1,467.6 |
10.4 |
10.6 |
4.9 |
4.9 |
2.2 |
2.4 |
Saputo |
$17,854.1 |
24.8 |
22.2 |
14.7 |
13.5 |
1.3 |
1.4 |
Peer group average |
20.3 |
18.1 |
10.3 |
9.4 |
1.9 |
2.0 |
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CLI (post-merger) |
€38.8 |
45.4 |
19.8 |
14.9 |
8.8 |
2.2 |
2.2 |
Premium/(discount) to peer group |
123.5% |
9.5% |
45.0% |
-6.6% |
14.1 |
9.5 |
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Source: Edison Investment Research estimates and Bloomberg consensus. Note: Prices at 10 October 2016.
Exhibit 4: Financial summary
€000s |
2013 |
2014 |
2015 |
2016e |
2017e |
2018e |
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Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
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INCOME STATEMENT |
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Revenue |
|
|
99,967.0 |
102,558.0 |
98,318.9 |
118,101.3 |
183,032.3 |
183,032.3 |
Cost of Sales |
(80,923.4) |
(82,415.2) |
(78,796.3) |
(94,177.1) |
(145,222.7) |
(145,039.7) |
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Gross Profit |
19,043.7 |
20,142.8 |
19,522.6 |
23,924.2 |
37,809.6 |
37,992.6 |
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EBITDA |
|
|
4,910.6 |
5,844.8 |
4,850.6 |
6,445.2 |
10,903.8 |
11,269.9 |
Normalised operating profit |
|
|
1,379.1 |
2,751.7 |
1,553.8 |
1,908.0 |
4,763.8 |
5,245.4 |
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
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Exceptionals |
(249.9) |
(134.0) |
145.0 |
0.0 |
0.0 |
0.0 |
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Share-based payments |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
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Reported operating profit |
1,129.1 |
2,617.6 |
1,698.8 |
1,908.0 |
4,763.8 |
5,245.4 |
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Net Interest |
(674.5) |
(810.7) |
(678.0) |
(876.3) |
(1,755.5) |
(1,700.0) |
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Joint ventures & associates (post tax) |
(3.9) |
(4.2) |
(417.6) |
0.0 |
0.0 |
0.0 |
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Exceptionals |
1,646.2 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
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Profit Before Tax (norm) |
|
|
2,346.8 |
1,936.7 |
458.2 |
1,031.7 |
3,008.3 |
3,545.4 |
Profit Before Tax (reported) |
|
|
2,096.9 |
1,802.7 |
603.2 |
1,031.7 |
3,008.3 |
3,545.4 |
Reported tax |
(827.0) |
(1,011.6) |
(86.6) |
(361.1) |
(1,052.9) |
(1,240.9) |
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Profit After Tax (norm) |
2,042.5 |
809.4 |
30.3 |
670.6 |
1,955.4 |
2,304.5 |
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Profit After Tax (reported) |
1,269.9 |
791.1 |
516.6 |
670.6 |
1,955.4 |
2,304.5 |
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Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
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Discontinued operations |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
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Net income (normalised) |
2,042.5 |
809.4 |
30.3 |
670.6 |
1,955.4 |
2,304.5 |
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Net income (reported) |
1,269.9 |
791.1 |
516.6 |
670.6 |
1,955.4 |
2,304.5 |
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Basic average number of shares outstanding (m) |
10 |
10 |
10 |
11 |
14 |
14 |
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EPS - basic normalised (€) |
|
|
0.20 |
0.08 |
0.00 |
0.06 |
0.14 |
0.16 |
EPS - diluted normalised (€) |
|
|
0.20 |
0.08 |
0.00 |
0.06 |
0.14 |
0.16 |
EPS - basic reported (€) |
|
|
0.13 |
0.08 |
0.05 |
0.06 |
0.14 |
0.16 |
Dividend (€) |
0.06 |
0.06 |
0.06 |
0.06 |
0.06 |
0.06 |
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Revenue growth (%) |
N/A |
2.6 |
(4.1) |
20.1 |
55.0 |
0.0 |
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Gross Margin (%) |
19.0 |
19.6 |
19.9 |
20.3 |
20.7 |
20.8 |
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EBITDA Margin (%) |
4.9 |
5.7 |
4.9 |
5.5 |
6.0 |
6.2 |
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Normalised Operating Margin |
1.4 |
2.7 |
1.6 |
1.6 |
2.6 |
2.9 |
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BALANCE SHEET |
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Fixed Assets |
|
|
65,063.6 |
64,184.5 |
64,540.0 |
129,672.6 |
129,206.5 |
129,039.1 |
Intangible Assets |
11,776.9 |
11,706.2 |
11,538.8 |
18,371.3 |
18,203.9 |
18,036.5 |
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Tangible Assets |
52,652.3 |
51,670.9 |
52,009.6 |
106,009.6 |
105,711.0 |
105,711.0 |
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Investments & other |
634.4 |
807.5 |
991.7 |
5,291.7 |
5,291.7 |
5,291.7 |
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Current Assets |
|
|
35,646.7 |
36,689.3 |
41,122.1 |
60,442.5 |
59,391.3 |
60,966.9 |
Stocks |
3,473.1 |
3,437.8 |
3,540.6 |
7,931.8 |
6,525.5 |
6,517.2 |
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Debtors |
16,210.3 |
15,719.7 |
14,370.1 |
31,523.1 |
27,157.1 |
27,157.1 |
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Cash & cash equivalents |
7,822.1 |
10,050.8 |
12,192.4 |
6,968.7 |
11,689.8 |
13,273.7 |
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Other |
8,141.3 |
7,480.9 |
11,018.9 |
14,018.9 |
14,018.9 |
14,018.9 |
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Current Liabilities |
|
|
(34,211.0) |
(33,231.9) |
(35,004.4) |
(65,737.2) |
(67,444.6) |
(67,388.3) |
Creditors |
(23,402.2) |
(23,743.5) |
(24,246.7) |
(42,979.6) |
(44,687.0) |
(44,630.6) |
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Tax and social security |
(333.3) |
(467.7) |
(356.9) |
(356.9) |
(356.9) |
(356.9) |
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Short term borrowings |
(10,475.4) |
(9,020.8) |
(10,400.7) |
(22,400.7) |
(22,400.7) |
(22,400.7) |
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Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
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Long Term Liabilities |
|
|
(25,775.9) |
(27,178.1) |
(29,847.5) |
(67,296.9) |
(62,956.9) |
(62,956.9) |
Long term borrowings |
(17,297.0) |
(18,218.6) |
(22,446.0) |
(39,446.0) |
(39,446.0) |
(39,446.0) |
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Other long term liabilities |
(8,478.9) |
(8,959.5) |
(7,401.5) |
(27,850.9) |
(23,510.9) |
(23,510.9) |
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Net Assets |
|
|
40,723.4 |
40,463.7 |
40,810.3 |
57,080.9 |
58,196.3 |
59,660.8 |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
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Shareholders' equity |
|
|
40,723.4 |
40,463.7 |
40,810.3 |
57,080.9 |
58,196.3 |
59,660.8 |
CASH FLOW |
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Op Cash Flow before WC and tax |
4,910.6 |
5,844.8 |
4,850.6 |
6,445.2 |
10,903.8 |
11,269.9 |
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Working capital |
1,714.6 |
1,810.8 |
(1,942.2) |
(3,959.2) |
4,139.7 |
(48.1) |
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Exceptional & other |
31.0 |
(128.7) |
(1,262.2) |
0.0 |
0.0 |
0.0 |
||
Tax |
(827.0) |
(1,011.6) |
(86.6) |
(361.1) |
(1,052.9) |
(1,240.9) |
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Net operating cash flow |
|
|
5,829.2 |
6,515.3 |
1,559.6 |
2,124.9 |
13,990.6 |
9,980.9 |
Capex |
(780.5) |
(2,107.1) |
(3,913.8) |
(4,369.7) |
(5,674.0) |
(5,857.0) |
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Acquisitions/disposals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net interest |
(674.5) |
(810.7) |
(678.0) |
(876.3) |
(1,755.5) |
(1,700.0) |
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Equity financing |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
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Dividends |
(200.0) |
(600.0) |
(600.0) |
(600.0) |
(840.0) |
(840.0) |
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Other |
(5,922.6) |
2,293.5 |
5,031.4 |
0.0 |
0.0 |
0.0 |
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Net Cash Flow |
(1,748.4) |
5,290.9 |
1,399.1 |
(3,721.2) |
5,721.1 |
1,583.8 |
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Opening net debt/(cash) |
|
|
25,676.0 |
19,950.2 |
17,188.6 |
20,654.3 |
54,878.0 |
50,156.9 |
FX |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
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Other non-cash movements |
7,474.2 |
(2,529.3) |
(4,864.8) |
(30,502.6) |
(1,000.0) |
0.0 |
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Closing net debt/(cash) |
|
|
19,950.2 |
17,188.6 |
20,654.3 |
54,878.0 |
50,156.9 |
48,573.0 |
Source: Edison Investment Research, Centrale del Latte d'Italia accounts
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