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Research: Consumer
9M19 results were in line with expectations. Consolidated revenues were up 4% on the prior year, with good performances from pulses and vegetables and ready-made sauces, while the red line and the fruit line were broadly stable. Q3 revenues were up an impressive 7%. The outlook for FY19 remains unchanged and management is forging ahead with its four-year investment plan. We leave our forecasts and fair value of €14.00/share unchanged.
Written by
La Doria |
Steady performance |
9M19 results |
Food & beverages |
22 November 2019 |
Share price performance
Business description
Next events
Analysts
La Doria is a research client of Edison Investment Research Limited |
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9M19 results were in line with expectations. Consolidated revenues were up 4% on the prior year, with good performances from pulses and vegetables and ready-made sauces, while the red line and the fruit line were broadly stable. Q3 revenues were up an impressive 7%. The outlook for FY19 remains unchanged and management is forging ahead with its four-year investment plan. We leave our forecasts and fair value of €14.00/share unchanged.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/17 |
669.1 |
39.7 |
98.1 |
23.0 |
9.1 |
2.6 |
12/18 |
687.9 |
33.1 |
88.2 |
18.0 |
10.1 |
2.0 |
12/19e |
690.0 |
35.0 |
82.4 |
20.0 |
10.8 |
2.2 |
12/20e |
717.6 |
39.7 |
93.5 |
21.0 |
9.5 |
2.4 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
9M19 results in line with expectations
The domestic Italian market remained challenging, with the loss of some discount channel orders and generally sluggish volumes resulting in a 3% reduction in sales. This was more than offset by the international business (+5.8%) and, within this, an improvement in the UK on the volume front, albeit margins remain under pressure. The outlook for FY19 is unchanged. It is subdued as raw material cost inflation remains an issue and the pricing environment is tough, hence margin pressure continues.
Margins remain under pressure
The competitive environment remains challenging as consumer demand is subdued across most of La Doria’s markets and retailers continue to exert downward pressure on pricing. Raw material costs are increasing: following the 2019 seasonal tomato campaign, costs will be up slightly, pulse costs remain high due to EU import duties, while higher sugar costs are affecting the fruit line. Given the difficult pricing environment, we see a downward risk to FY20 profitability, though this could be offset by stronger sales growth. We note the four-year investment plan is aimed at improving economies of scale and reducing costs, in order to ease margin pressure from within.
Valuation: Fair value of €14.00/share
Our DCF model indicates a fair value of €14.00 per share (unchanged), or c 60% upside from the current share price. La Doria trades on a P/E of 9.5x FY20e, a c 30% discount to its private-label peer group. On EV/EBITDA it trades at 7.1x 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.
9M19 results review
Consolidated revenues were up 4.0% y-o-y to €532.9m in 9M19, with a negligible impact from FX. EBITDA was broadly flat at €40.2m (€40.5m in 9M18), with the EBITDA margin down 30bp to 7.6%. EBIT was down 7% to €27.0m, with the margin down 60bp to 5.1%. Net debt was €135.0m vs €107.2m at the end of H119 and €79.1m at the end of 9M18, following investment in the four-year investment plan, as well as seasonal working capital outflows during Q319.
The pulses and vegetables line performed strongly, with sales up 7.2%. The sauces line also showed good growth (+5.8%), while the tomato-based business (red line) and the fruit line were broadly flat. The ‘other lines’ (ie the trading business that goes through the UK subsidiary, LDH) was up 3.6% due to sustained volume growth and a slight increase in selling price. Overall, sales in the domestic market were down (-3.0%), while international sales were up (+5.8%).
Valuation
We illustrate La Doria’s valuation versus its peers in Exhibit 1 below. On our 2020 estimates, La Doria currently 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 EV/EBITDA, La Doria trades at a c 15% discount to the peer group.
Exhibit 1: Benchmark valuation of La Doria relative to peers
Market cap |
P/E (x) |
EV/EBITDA (x) |
Dividend yield (%) |
||||
(m) |
2019e |
2020e |
2019e |
2020e |
2019e |
2020e |
|
Greencore |
£1,088.2 |
15.8 |
13.1 |
9.5 |
8.8 |
2.6 |
2.9 |
Ebro Foods |
£3,022.8 |
18.9 |
16.8 |
10.8 |
9.6 |
3.3 |
3.5 |
Bonduelle |
€ 795.0 |
10.2 |
9.2 |
6.9 |
6.6 |
2.2 |
2.3 |
Valsoia |
€ 117.2 |
18.0 |
17.5 |
9.0 |
8.3 |
3.5 |
3.5 |
Peer group average |
15.7 |
14.1 |
9.1 |
8.3 |
2.9 |
3.0 |
|
La Doria |
€ 275.9 |
10.8 |
9.5 |
7.8 |
7.1 |
2.2 |
2.4 |
Premium/(discount) to peer group |
(31.2%) |
(32.7%) |
(13.7%) |
(15.3%) |
(21.8%) |
(21.7%) |
|
Source: Edison Investment Research estimates, Refinitiv. Note: Prices at 21 November 2019.
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 5% and beta of 0.8. Our fair value is unchanged at €14.0 per share. 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 FY18 EBITDA margin of 7.7% and EBIT margin of 5.1%) and a terminal growth rate of 0.2%.
Exhibit 2: 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% |
7.0 |
7.6 |
8.1 |
8.7 |
9.3 |
9.9 |
-1.5% |
7.6 |
8.2 |
8.9 |
9.5 |
10.2 |
10.9 |
|
-0.5% |
8.3 |
9.1 |
9.8 |
10.6 |
11.4 |
12.1 |
|
0.5% |
9.3 |
10.2 |
11.1 |
12.0 |
12.9 |
13.8 |
|
1.5% |
10.7 |
11.8 |
12.9 |
14.0 |
15.1 |
16.2 |
|
2.5% |
12.8 |
14.2 |
15.7 |
17.1 |
18.5 |
19.9 |
|
3.5% |
16.5 |
18.4 |
20.3 |
22.2 |
24.1 |
26.1 |
|
Source: Edison Investment Research
Exhibit 3: Financial summary
€m |
2017 |
2018 |
2019e |
2020e |
2021e |
2022e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
669.1 |
687.9 |
690.0 |
717.6 |
739.1 |
761.3 |
Cost of Sales |
(555.7) |
(581.7) |
(583.4) |
(603.9) |
(618.3) |
(636.1) |
||
Gross Profit |
113.4 |
106.2 |
106.5 |
113.7 |
120.8 |
125.2 |
||
EBITDA |
|
|
60.1 |
52.8 |
53.0 |
58.7 |
64.9 |
67.6 |
Operating Profit (before amort. and except.) |
41.6 |
34.8 |
37.0 |
41.7 |
45.9 |
47.6 |
||
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) |
0.2 |
3.2 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Operating Profit |
41.8 |
37.9 |
37.0 |
41.7 |
45.9 |
47.6 |
||
Net Interest |
(1.9) |
(1.7) |
(2.0) |
(2.0) |
(2.0) |
(2.0) |
||
Profit Before Tax (norm) |
|
|
39.7 |
33.1 |
35.0 |
39.7 |
43.9 |
45.6 |
Profit Before Tax (FRS 3) |
|
|
39.9 |
36.3 |
35.0 |
39.7 |
43.9 |
45.6 |
Tax |
(9.5) |
(8.9) |
(9.4) |
(10.7) |
(11.8) |
(12.3) |
||
Profit After Tax (norm) |
30.4 |
27.3 |
25.5 |
29.0 |
32.0 |
33.3 |
||
Profit After Tax (FRS 3) |
30.4 |
27.3 |
25.5 |
29.0 |
32.0 |
33.3 |
||
Average Number of Shares Outstanding (m) |
31.0 |
31.0 |
31.0 |
31.0 |
31.0 |
31.0 |
||
EPS - normalised fully diluted (c) |
|
|
98.1 |
88.2 |
82.4 |
93.5 |
103.3 |
107.4 |
EPS - (IFRS) (c) |
|
|
98.1 |
88.2 |
82.4 |
93.5 |
103.3 |
107.4 |
Dividend per share (c) |
23.0 |
18.0 |
20.0 |
21.0 |
22.0 |
22.0 |
||
Gross Margin (%) |
16.9 |
15.4 |
15.4 |
15.8 |
16.3 |
16.4 |
||
EBITDA Margin (%) |
9.0 |
7.7 |
7.7 |
8.2 |
8.8 |
8.9 |
||
Operating Margin (before GW and except.) (%) |
6.2 |
5.1 |
5.4 |
5.8 |
6.2 |
6.3 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
174.0 |
203.5 |
246.0 |
254.2 |
254.4 |
242.4 |
Intangible Assets |
6.1 |
5.5 |
4.8 |
4.1 |
3.4 |
2.7 |
||
Tangible Assets |
149.9 |
175.9 |
216.6 |
215.3 |
205.0 |
193.7 |
||
Investments |
18.0 |
22.1 |
24.5 |
34.7 |
45.9 |
45.9 |
||
Current Assets |
|
|
394.2 |
419.4 |
378.1 |
403.0 |
437.7 |
474.9 |
Stocks |
209.5 |
204.4 |
201.3 |
205.3 |
207.1 |
213.1 |
||
Debtors |
106.5 |
110.2 |
107.6 |
109.1 |
110.9 |
114.2 |
||
Cash |
66.7 |
86.8 |
51.2 |
70.6 |
101.7 |
129.6 |
||
Other |
11.5 |
18.0 |
18.0 |
18.0 |
18.0 |
18.0 |
||
Current Liabilities |
|
|
(209.8) |
(242.3) |
(234.4) |
(238.5) |
(241.3) |
(244.9) |
Creditors |
(142.1) |
(148.4) |
(140.5) |
(144.6) |
(147.5) |
(151.0) |
||
Short term borrowings |
(67.6) |
(93.9) |
(93.9) |
(93.9) |
(93.9) |
(93.9) |
||
Long Term Liabilities |
|
|
(131.5) |
(139.3) |
(122.8) |
(122.8) |
(122.8) |
(122.8) |
Long term borrowings |
(97.2) |
(105.2) |
(105.2) |
(105.2) |
(105.2) |
(105.2) |
||
Other long term liabilities |
(34.3) |
(34.1) |
(17.6) |
(17.6) |
(17.6) |
(17.6) |
||
Net Assets |
|
|
227.0 |
241.4 |
266.9 |
295.9 |
327.9 |
349.6 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
35.4 |
48.2 |
41.3 |
46.6 |
52.3 |
49.6 |
Net Interest |
(1.9) |
(1.7) |
(2.0) |
(2.0) |
(2.0) |
(2.0) |
||
Tax |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Capex |
(17.6) |
(46.5) |
(56.0) |
(15.0) |
(8.0) |
(8.0) |
||
Acquisitions/disposals |
(0.4) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Financing |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Dividends |
(7.7) |
(9.6) |
(8.9) |
(10.1) |
(11.2) |
(11.6) |
||
Other |
(2.4) |
(4.6) |
(10.0) |
(0.0) |
0.0 |
0.0 |
||
Net Cash Flow |
5.4 |
(14.1) |
(35.6) |
19.4 |
31.1 |
27.9 |
||
Opening net debt/(cash) |
|
|
104.8 |
98.2 |
112.3 |
147.9 |
128.5 |
97.4 |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
1.2 |
(0.0) |
(0.0) |
0.0 |
(0.0) |
0.0 |
||
Closing net debt/(cash) |
|
|
98.2 |
112.3 |
147.9 |
128.5 |
97.4 |
69.5 |
Source: Company accounts, Edison Investment Research
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