La Doria — A tough environment

La Doria (MI: LD)

Last close As at 28/03/2024

16.46

0.00 (0.00%)

Market capitalisation

511m

More on this equity

Research: Consumer

La Doria — A tough environment

The consumer environment remains tough for La Doria and the adverse weather conditions for the seasonal tomato campaign have led management to slightly edge down its FY18 profit outlook earlier this year. During 9M18, underlying sales were up 2%, which represents a slowdown from the +3.7% in H1. This was caused by a deceleration in growth in the “other lines” of the trading business during Q3, ie the non-core part. Management is forging ahead with its four-year investment plan and the Acerra plant has now closed. We trim our forecasts in line with the revised outlook and our fair value moves to €15.40 from €16.10.

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Consumer

La Doria

A tough environment

9M18 results

Food & beverages

21 November 2018

Price

€8.03

Market cap

€249m

Net debt (€m) at 30 September 2018

79.1

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

(19.1)

(20.7)

(51.7)

Rel (local)

(16.1)

(11.2)

(41.6)

52-week high/low

€17.5

€8.0

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 event

FY18 results

March 2019

Analysts

Sara Welford

+44 (0)20 3077 5700

Paul Hickman

+44 (0)20 3681 2501

La Doria is a research client of Edison Investment Research Limited

The consumer environment remains tough for La Doria and the adverse weather conditions for the seasonal tomato campaign have led management to slightly edge down its FY18 profit outlook earlier this year. During 9M18, underlying sales were up 2%, which represents a slowdown from the +3.7% in H1. This was caused by a deceleration in growth in the “other lines” of the trading business during Q3, ie the non-core part. Management is forging ahead with its four-year investment plan and the Acerra plant has now closed. We trim our forecasts in line with the revised outlook and our fair value moves to €15.40 from €16.10.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/16

653.1

37.3

108.8

18.0

7.4

2.2

12/17

669.1

39.7

98.1

23.0

8.2

2.9

12/18e

689.2

37.8

88.9

24.0

9.0

3.0

12/19e

709.8

41.0

96.4

25.0

8.3

3.1

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

Tomato campaign to dent profitability

As discussed at the H1 results, overall tomato costs did indeed turn out to be higher and, coupled with lower volumes, which affect fixed-cost leverage, profitability will be dented. Increased sales prices will partly mitigate the damage, but FY18 and H119 will be affected. Industry stock levels of tomato are low and hence bode well for the 2019 tomato campaign (which will have an effect in FY20).

9M18 results broadly in line, but outlook reduced

The performance was mixed, with good revenue growth in the red line, pulses and vegetables, and the trading business. The sauces line was stable, with good volume growth offset by price reductions. The fruit line’s performance was disappointing, mainly due to lower domestic fruit juice sales. Now that the full outcome of the customer negotiations is known, we trim our forecasts for Q418 and beyond to reflect the lower efficiency of the tomato campaign and its lower crop volumes. Our FY18e EBITDA moves from €59.2m to €56.1m. As a reminder, management’s business plan, released at the start of the year, guided towards €58m in EBITDA in FY18e.

Valuation: Fair value of €15.40/share

Our DCF model indicates a fair value of €15.40 per share (previously €16.10), or c 90% upside from the current share price. La Doria trades on 8.3x FY19e P/E, a c 50% discount to its private-label peer group. On EV/EBITDA it trades at 6.5x FY19e, or a c 25% discount. We believe La Doria remains an attractive proposition, given the strength of its market position in the private-label segment, as well as management’s commitment to improving the stability and visibility of the business by reducing reliance on the more volatile tomato line, while continuing to invest behind the business in order to maintain its competitive edge.

9M results review and outlook

Consolidated revenue for 9M18 of €512.2m was 1.3% ahead of the prior year and up 2% at constant currency. This was a slowdown from the 3.7% constant currency growth witnessed during H118. The performance was mixed, with the red line underlying sales up 4.4% during the period, and the pulses and vegetables business up 3.5% at constant currency. The sauces line was flat in underlying terms, with volume growth offset by some price erosion. This was a trend already seen during H118 as La Doria management made the conscious decision to implement targeted price reductions in order to gain or maintain market share. The ‘other’ line (the trading business) also witnessed growth, with underlying sales up 5.3%. On the negative side, the fruit line contracted substantially, with underlying sales down 10.4%, mainly attributable to lower domestic market fruit juice sales.

Group EBITDA was €40.5m for 9M18, down from €42.4m in the prior-year period. EBITDA margin was therefore down 50bp to 7.9% as lower sales prices weighed on margins. Reported end-September net debt was €79.1m, an increase from the 30 September 2017 level of €68.7m, and the 30 June 2018 level of €64.4m, as capital expenditure on the four-year investment plan continued. Due to the seasonality of the business, we expect the usual cash outflow in H2. We forecast net debt of €122m at end-FY18e as capex on the four-year plan continues. As a reminder, the Acerra plant closed at the end of September, as scheduled. The new lines of sauces in Parma and cans in Sarno are being built, and building of the new logistics centre for the UK LDH business should start in H2. The four-year industrial plan aims at increasing production capacity in categories with stronger growth potential and higher margin (such as pasta sauces), the improvement of industrial and logistics efficiency in order to reduce overall cost and become more competitive.

The annual tomato campaign runs from the end of July to the end of September/start of October. Typically, La Doria negotiates annual contracts with its customers – and, therefore, prices – just before or during the processing season, which gives it good visibility on its profitability outlook through to Q3 of the following year, when the next pricing rounds occur. The situation for pulses is also expected to become slightly tougher, as increased tariffs on US pulses have contributed to a general uplift in global pulse costs. Thus, we expect the pulses and vegetables market to witness an overall increase in pricing to offset the rising costs.

The sauces business had a good 9M18 and we expect volume growth to continue, although the pricing environment is likely to remain competitive. The fruit and fruit juices segment is likely to remain under pressure, as reduced selling prices and severe competition continue to be a problem in the domestic Italian market.

We illustrate our changes to forecasts in Exhibit 1 below. As discussed earlier, now that the full outcome of the customer negotiations is known, we trim our forecasts for Q418 and beyond to reflect the lower efficiency of the tomato campaign and its lower crop volumes. Our FY18e EBITDA moves from €59.2m to €54.8m, and our FY19e EBITDA also moves lower, in line with management’s guidance that for FY18 there will be a reduced margin “to a slightly greater extent than envisaged in the Plan”.

Exhibit 1: Old vs new forecasts (€m)

2018e

2019e

Old

New

% chg

Old

New

% chg

Revenue

689.2

689.2

0.0%

709.8

709.8

0.0%

EBITDA

59.2

54.8

-7.4%

64.5

60.0

-7.0%

EBIT

44.2

39.8

-10.0%

47.5

43.0

-9.6%

PBT

42.2

37.8

-10.4%

45.5

41.0

-10.0%

Net profit

30.8

27.6

-10.4%

33.2

29.9

-10.0%

Net debt

119.8

122.3

2.1%

114.7

119.4

4.1%

Source: Edison Investment Research

Valuation

We illustrate La Doria’s valuation vis-à-vis its peers in Exhibit 2 below. On 2019 estimates, La Doria currently trades at a c 50% discount on P/E, which we believe is unwarranted given the balance sheet is conservatively managed. On EV/EBITDA, it trades at a c 25% discount.

Exhibit 2: 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

£1,364.1

12.1

11.3

8.6

8.1

3.1

3.3

Ebro Foods

£2,766.1

16.1

14.6

9.7

9.1

3.5

3.7

Parmalat

€ 5,175.4

28.9

22.5

N/A

N/A

0.7

0.8

Bonduelle

€ 1,032.2

11.1

10.4

6.9

6.4

1.8

2.0

Valsoia

€ 129.9

16.6

N/A

9.0

N/A

2.7

N/A

Peer group average

17.0

14.7

8.6

7.9

2.4

2.4

La Doria

€ 248.9

8.3

7.3

6.5

5.9

3.1

3.2

Premium/(discount) to peer group

-50.9%

-50.1%

-24.6%

-24.8%

31.3%

33.5%

Source: Edison Investment Research estimates, Bloomberg consensus. Note: Prices at 20 November 2018.

Our primary valuation methodology is DCF analysis and we calculate a fair value of €15.40/share (previously €16.10), or c 90% upside from the current level. This is based on our assumptions of a 1.0% terminal growth rate and an 8.0% terminal EBIT margin. Our WACC of 6.4% is predicated on an equity risk premium of 4.5%, borrowing spread of 6% and beta of 0.8. Below, we show a sensitivity analysis to these assumptions and note that the current share price is discounting a terminal EBIT margin of 6.5% (which compares to La Doria’s FY17 EBITDA margin of 9.0% and EBIT margin of 6.2%) and a terminal growth rate of c -2%.

Exhibit 3: DCF sensitivity to terminal growth rate and EBIT margin (€/share)

EBIT margin

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

Terminal growth

-2.5%

7.7

8.3

8.9

9.4

10.0

10.5

-1.5%

8.4

9.1

9.7

10.3

11.0

11.6

-0.5%

9.3

10.1

10.8

11.5

12.3

13.0

0.5%

10.5

11.4

12.3

13.1

14.0

14.9

1.5%

12.2

13.3

14.4

15.4

16.5

17.5

2.5%

14.8

16.2

17.5

18.9

20.2

21.6

3.5%

19.2

21.0

22.9

24.7

26.5

28.4

Source: Edison Investment Research estimates

Exhibit 4: Financial summary

€m

2015

2016

2017

2018e

2019e

2020e

2021e

December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

748.3

653.1

669.1

689.2

709.8

731.1

753.1

Cost of Sales

(616.9)

(545.4)

(555.7)

(577.9)

(592.4)

(607.2)

(621.7)

Gross Profit

131.5

107.8

113.4

111.3

117.5

123.9

131.4

EBITDA

 

 

77.6

56.3

60.1

54.8

60.0

65.4

71.9

Operating Profit (before amort. and except.)

61.0

39.9

41.6

41.1

44.4

39.8

43.0

Intangible Amortisation

0.0

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

0.0

FX Gain / (loss)

3.6

8.9

0.2

0.0

0.0

0.0

0.0

Operating Profit

64.6

48.8

41.8

39.8

43.0

48.4

53.9

Net Interest

(3.6)

(2.7)

(1.9)

(2.0)

(2.0)

(2.0)

(2.0)

Profit Before Tax (norm)

 

 

57.4

37.3

39.7

37.8

41.0

46.4

51.9

Profit Before Tax (FRS 3)

 

 

61.0

46.2

39.9

37.8

41.0

46.4

51.9

Tax

(16.1)

(12.4)

(9.5)

(10.2)

(11.1)

(12.5)

(14.0)

Profit After Tax (norm)

44.8

33.7

30.4

27.6

29.9

33.9

37.9

Profit After Tax (FRS 3)

44.8

33.7

30.4

27.6

29.9

33.9

37.9

Average Number of Shares Outstanding (m)

31.0

31.0

31.0

31.0

31.0

31.0

31.0

EPS - normalised fully diluted (c)

 

 

144.6

108.8

98.1

88.9

96.4

109.3

122.2

EPS - (IFRS) (c)

 

 

144.6

108.8

98.1

88.9

96.4

109.3

122.2

Dividend per share (c)

28.0

18.0

23.0

24.0

25.0

26.0

27.0

Gross Margin (%)

17.6

16.5

16.9

16.1

16.5

16.9

17.4

EBITDA Margin (%)

10.4

8.6

9.0

7.9

8.4

8.9

9.5

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

8.1

6.1

6.2

6.0

5.8

6.1

6.6

BALANCE SHEET

Fixed Assets

 

 

177.6

173.3

174.0

220.0

236.0

246.1

253.6

Intangible Assets

10.6

10.0

6.1

5.4

4.7

4.0

3.3

Tangible Assets

143.3

143.9

149.9

196.6

208.3

206.0

199.7

Investments

23.7

19.4

18.0

18.0

23.0

36.1

50.6

Current Assets

 

 

398.8

367.8

394.2

357.3

368.4

396.2

430.5

Stocks

199.8

187.0

209.5

196.5

201.4

206.5

208.3

Debtors

107.7

103.9

106.5

106.8

110.0

113.3

116.7

Cash

77.9

62.8

66.7

42.5

45.5

64.9

94.0

Other

13.3

14.2

11.5

11.5

11.5

11.5

11.5

Current Liabilities

 

 

(220.7)

(187.9)

(209.8)

(201.0)

(203.7)

(206.4)

(209.1)

Creditors

(129.3)

(126.4)

(142.1)

(133.4)

(136.1)

(138.8)

(141.5)

Short term borrowings

(91.4)

(61.5)

(67.6)

(67.6)

(67.6)

(67.6)

(67.6)

Long Term Liabilities

 

 

(157.3)

(144.5)

(131.5)

(120.7)

(114.1)

(114.1)

(114.1)

Long term borrowings

(116.6)

(106.1)

(97.2)

(97.2)

(97.2)

(97.2)

(97.2)

Other long term liabilities

(40.7)

(38.3)

(34.3)

(23.5)

(16.8)

(16.8)

(16.8)

Net Assets

 

 

198.4

208.8

227.0

255.7

286.7

321.8

360.9

CASH FLOW

Operating Cash Flow

 

 

58.2

65.7

39.9

48.5

43.4

47.3

55.4

Net Interest

(3.6)

(2.7)

(1.9)

(2.0)

(2.0)

(2.0)

(2.0)

Tax

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Capex

(8.4)

(13.0)

(18.7)

(61.0)

(28.0)

(14.0)

(11.0)

Acquisitions/disposals

(4.9)

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

0.0

Dividends

(9.3)

(8.4)

(7.6)

(9.6)

(10.5)

(11.9)

(13.3)

Other

(23.3)

(16.3)

(5.2)

0.0

0.0

0.0

0.0

Net Cash Flow

8.7

25.3

6.6

(24.2)

3.0

19.4

29.1

Opening net debt/(cash)

 

 

138.2

130.1

104.8

98.2

122.4

119.4

100.0

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

(0.6)

(0.1)

0.1

0.0

0.0

(0.0)

0.0

Closing net debt/(cash)

 

 

130.1

104.8

98.2

122.3

119.4

100.0

70.9

Source: Edison Investment Research, La Doria

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This report has been commissioned by La Doria and prepared and issued by Edison, in consideration of a fee payable by La Doria. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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General disclaimer and copyright

This report has been commissioned by La Doria and prepared and issued by Edison, in consideration of a fee payable by La Doria. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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Frankfurt +49 (0)69 78 8076 960

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NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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