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La Doria — Recovery coming through

La Doria (MI: LD)

Last close As at 04/11/2024

16.46

— 0.00 (0.00%)

Market capitalisation

511m

More on this equity

Research: Consumer

La Doria — Recovery coming through

Following a significant improvement in the pulses and vegetables line and the sauces business, La Doria has reported an impressive 7.6% growth in revenue at constant currency for 9M17, which implies 8.0% growth during the latest quarter. The growth was mainly volume-driven, which is positive. As expected, group margins were lower during the period. Overall guidance, however, has been raised as volume growth is ahead of management expectations and the margin contraction has been less than feared. We raise our FY17 forecasts again in light of the positive 9M17 results. Our fair value increases to €16.90 from €15.54/share.

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Written by

Consumer

La Doria

Recovery coming through

9M17 results

Food & beverages

20 November 2017

Price

€16.18

Market cap

€502m

Net debt (€m) at 30 September 2017

68.7

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

(1.8)

48.7

125.3

Rel (local)

(0.3)

46.7

67.9

52-week high/low

€17.1

€7.2

Business description

La Doria is the leading manufacturer of private-label preserved vegetables and fruit for the Italian (20% revenues) and international (80% revenues) market. It enjoys leading market share positions across its product ranges in the UK and Italy.

Next events

FY17 results

March 2018

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

Following a significant improvement in the pulses and vegetables line and the sauces business, La Doria has reported an impressive 7.6% growth in revenue at constant currency for 9M17, which implies 8.0% growth during the latest quarter. The growth was mainly volume-driven, which is positive. As expected, group margins were lower during the period. Overall guidance, however, has been raised as volume growth is ahead of management expectations and the margin contraction has been less than feared. We raise our FY17 forecasts again in light of the positive 9M17 results. Our fair value increases to €16.90 from €15.54/share.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/15

748.3

57.4

144.6

28.0

11.2

1.7

12/16

653.1

37.3

108.8

18.0

14.9

1.1

12/17e

666.2

37.8

90.1

17.0

18.0

1.1

12/18e

696.2

44.7

105.3

20.0

15.4

1.2

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

Good 9M17 results

While the overall trading environment remains tough, with continued pressure from the supermarkets amid heightened competition and continued sterling weakness, La Doria’s businesses are witnessing an improvement in performance. The pulses and vegetables line and the sauces business both posted revenue growth of over 10% at constant currency, which was mainly volume-driven. In terms of geographies, the overseas markets fared better than the domestic market, and exports now account for 79% of group sales.

Recovery coming through

As outlined in the company’s latest three-year business plan (last updated in March), management expected the recovery to commence in H217 following a better 2017 tomato campaign over the summer and more favourable vegetable harvests, and then to come through fully in the 2018 numbers. This continues to be our expectation, although the latest results demonstrate that the recovery is coming through more quickly than management expected.

Valuation: €16.90/share

Based on our forecasts, our DCF model points to a fair value of €16.90 per share, or c 4% upside from the current share price. La Doria trades on 15.4x FY18e P/E, a c 20% discount to its private-label peer group, while on 10.5x FY18e EV/EBITDA, it trades at a c 18% premium to the peer group. We believe La Doria remains an attractive proposition given the strength of its market position in the private-label segment, and management’s commitment to improve the stability and visibility of the business by reducing reliance on the more volatile tomato line.

9M17 financial results and business update

Business update

During the first nine months of 2017, La Doria has experienced the effects of the 2016 tomato campaign, which also affected H1 results and caused a significant contraction in selling prices. Ready-made sauces and the vegetables businesses saw volume-driven revenue growth. While margins expanded in the sauces business, the vegetable line posted a margin decline caused by a combination of lower selling prices and higher costs, in particular dry pulses and metal cans. Furthermore, group results were once again affected by sterling devaluation relating to the consolidation of LDH.

Given that the majority of the negotiations for the red line occur during Q3, there is good visibility on the business for the next 12 months. During Q4, the effects of the 2017 tomato campaign should start to come through, and there will be an increase in selling prices thanks to a much overdue rebalancing of demand and supply. For the fruit and vegetables/pulses lines, the contracts are mainly negotiated during Q4 and we therefore now also have good visibility for the next 12 months: harvests have improved, hence costs have been lower.

Sterling devaluation

As a reminder, La Doria derives c 50% of its revenue from the UK, which results in a translation impact on the P&L. Sterling devaluation also implies lower competitiveness for baked beans compared to UK-based competitors. Of course, the competition is also encountering higher raw material costs as a function of their euro denomination, but UK-based competitors in the baked beans category have the advantage of having some sterling-denominated costs to mitigate the impact. For the red line, all producers face the same headwinds so there is no loss of competitiveness. As a reminder, La Doria now consolidates 100% of its minorities and treats as debt the value of the put options that exist against it.

9M17 results

Consolidated revenues were up 2.8% to €505.6m during the period, or +7.6% at constant currency. EBITDA was down 5.6% to €42.4m, with the EBITDA margin down 70bp to 8.4%. EBIT was down 6.4% to €30.5m, with the EBIT margin down 60bp to 6.0%. Net debt was €68.7m vs €104.8m at the end of FY16 and €73.7m at the end of H117.

Forecasts

We raise our forecasts to reflect the strength of the 9M17 results and our expectation that Q4 will benefit from the positive tomato campaign and more favourable vegetable harvests. We note 2017 is expected to be a trough year in respect of margins, implying some recovery in the 2017 contract negotiation, which should mainly affect 2018 results. Given the encouraging 9M17 results, which were ahead of management expectations, we increase both our revenue growth and margin assumptions for FY17. At this stage we leave our FY18 forecasts broadly unchanged. We note that the company’s rolling three-year plan is due to be updated in March, and we expect the new plan will reflect a more meaningful recovery, hence we see potential upside to our FY18 forecasts. We illustrate the changes to our forecasts in Exhibit 1

Exhibit 1: Old vs new forecasts (€m)

2017e

2018e

Old

New

% chg

Old

New

% chg

Revenue

656.4

666.2

1.5%

695.8

696.2

0.1%

EBITDA

49.4

52.8

6.9%

60.0

60.7

1.2%

EBIT

36.4

39.8

9.4%

47.5

48.2

1.5%

PBT

34.4

37.8

9.9%

44.0

44.7

1.7%

Net profit

25.4

27.9

9.9%

32.1

32.6

1.7%

Net debt

98.0

98.6

0.6%

81.6

79.3

-2.8%

Source: Edison Investment Research

Valuation

La Doria’s share price has significantly outperformed the broader market over the last three, six, and 12 months, as it recovered from the underperformance during 2016. Over the past three months, La Doria is up c 40% compared to a 5% increase in the FTSEMIB index. On 2018 estimates, La Doria trades on 15.4x P/E, which is at a discount of c 20% versus the peer group of private-label and small-cap food manufacturers on 18.9x P/E. On EV/EBITDA, La Doria trades on 10.5x, or a premium of c 18% to its peer group.

Exhibit 2: Benchmark valuation of La Doria relative to peers

P/E (x)

EV/EBITDA (x)

Dividend yield (%)

Market cap (m)

2017e

2018e

2017e

2018e

2017e

2018e

Greencore

£1,384.5

12.5

11.3

10.0

8.1

3.0%

3.2%

Ebro Foods

€ 3,075.8

17.0

16.0

9.7

9.1

3.2%

3.4%

Parmalat

€ 5,914.2

38.9

35.4

11.9

10.0

0.6%

0.6%

Bonduelle

€ 1,205.4

14.9

13.1

7.9

7.1

1.4%

1.5%

Valsoia

€ 166.7

22.4

18.9

12.6

10.3

n/a

n/a

Peer group average

21.1

18.9

10.4

8.9

2.0%

2.2%

La Doria

€ 501.6

18.0

15.4

12.1

10.5

1.1%

1.2%

Premium/(discount) to peer group

-15.0%

-18.8%

16.4%

18.3%

-48.5%

-43.2%

Source: Edison Investment Research estimates and Bloomberg consensus. Note: Prices at 17 November 2017.

Our primary valuation methodology is DCF analysis and, based on our updated forecasts, we calculate a fair value of €16.90/share (from €15.54/share), or c 4% upside from the current levels. This is based on our assumptions of a 1.5% terminal growth rate and a 7.5% terminal EBIT margin. We have raised our terminal growth rate assumption from 1.0% to 1.5% to better align La Doria’s long-term growth prospects to our assumptions in the rest of the consumer space, whereby we typically assume terminal growth rate of 1.5-2.0%. Our WACC of 6.4% is based on an equity risk premium of 4%, a borrowing spread of 5% and beta of 0.8. Below, we show a sensitivity analysis of these assumptions and note that based on our model the current share price is discounting a terminal EBIT margin of c 7.2% (which compares to La Doria’s reported EBIT margin of 8.1% in 2015, 6.1% in 2016, and a company target of 5.6% EBIT margin at the trough in 2017e) and a terminal growth rate of 1%.

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

Terminal growth rate

EBIT margin

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

-2.5%

10.4

11.0

11.5

12.1

12.7

13.2

-1.5%

11.1

11.8

12.4

13.0

13.7

14.3

-0.5%

12.0

12.7

13.5

14.2

14.9

15.7

0.5%

13.2

14.1

14.9

15.8

16.7

17.5

1.5%

14.9

15.9

17.0

18.0

19.1

20.1

2.5%

17.4

18.7

20.1

21.4

22.7

24.1

3.5%

21.6

23.4

25.2

27.0

28.8

30.6

Source: Edison Investment Research estimates

Exhibit 4: Financial summary

€m

2014

2015

2016

2017e

2018e

2019e

December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

631.4

748.3

653.1

666.2

696.2

717.1

Cost of Sales

(527.6)

(616.9)

(545.4)

(561.6)

(582.0)

(593.0)

Gross Profit

103.8

131.5

107.8

104.6

114.2

124.1

EBITDA

 

 

60.0

77.6

56.3

52.8

60.7

69.7

Operating Profit (before amort. and except.)

48.1

61.0

39.9

36.4

47.5

39.8

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)

0.3

3.6

8.9

0.0

0.0

0.0

Operating Profit

48.4

64.6

48.8

39.8

48.2

57.2

Net Interest

(4.1)

(3.6)

(2.7)

(2.0)

(3.5)

(3.5)

Profit Before Tax (norm)

 

 

44.0

57.4

37.3

37.8

44.7

53.7

Profit Before Tax (FRS 3)

 

 

44.3

61.0

46.2

37.8

44.7

53.7

Tax

(14.3)

(16.1)

(12.4)

(9.8)

(12.1)

(14.5)

Profit After Tax (norm)

29.9

44.8

33.7

27.9

32.6

39.2

Profit After Tax (FRS 3)

29.9

44.8

33.7

27.9

32.6

39.2

Average Number of Shares Outstanding (m)

30.6

31.0

31.0

31.0

31.0

31.0

EPS - normalised fully diluted (c)

 

 

80.5

144.6

108.8

90.1

105.3

126.4

EPS - (IFRS) (c)

 

 

81.5

144.6

108.8

90.1

105.3

126.4

Dividend per share (c)

22.0

28.0

18.0

17.0

20.0

23.0

Gross Margin (%)

16.4

17.6

16.5

15.7

16.4

17.3

EBITDA Margin (%)

9.5

10.4

8.6

7.9

8.7

9.7

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

7.6

8.1

6.1

5.5

6.0

6.9

BALANCE SHEET

Fixed Assets

 

 

179.6

177.6

173.3

170.8

170.8

181.2

Intangible Assets

10.6

10.6

10.0

9.3

8.6

7.9

Tangible Assets

146.6

143.3

143.9

142.1

142.8

143.5

Investments

22.3

23.7

19.4

19.4

19.4

29.7

Current Assets

 

 

374.0

398.8

367.8

387.3

421.0

452.4

Stocks

212.9

199.8

187.0

190.9

200.8

204.6

Debtors

100.3

107.7

103.9

103.3

107.9

111.1

Cash

41.1

77.9

62.8

78.9

98.1

122.5

Other

19.6

13.3

14.2

14.2

14.2

14.2

Current Liabilities

 

 

(229.1)

(220.7)

(187.9)

(181.9)

(191.2)

(193.2)

Creditors

(143.7)

(129.3)

(126.4)

(120.4)

(129.7)

(131.7)

Short term borrowings

(85.4)

(91.4)

(61.5)

(61.5)

(61.5)

(61.5)

Long Term Liabilities

 

 

(136.6)

(157.3)

(144.5)

(140.1)

(132.1)

(132.6)

Long term borrowings

(93.9)

(116.6)

(106.1)

(116.0)

(116.0)

(116.0)

Other long term liabilities

(42.6)

(40.7)

(38.3)

(24.1)

(16.1)

(16.6)

Net Assets

 

 

187.9

198.4

208.8

236.1

268.6

307.7

CASH FLOW

Operating Cash Flow

 

 

53.7

58.2

65.7

33.6

43.4

50.1

Net Interest

(4.1)

(3.6)

(2.7)

(2.0)

(3.5)

(3.5)

Tax

0.0

0.0

0.0

0.0

0.0

0.0

Capex

(17.2)

(8.4)

(13.0)

(10.5)

(12.5)

(12.5)

Acquisitions/disposals

(64.8)

(4.9)

0.0

0.0

0.0

0.0

Financing

0.0

0.0

0.0

0.0

0.0

0.0

Dividends

(6.3)

(9.3)

(8.4)

(7.0)

(8.2)

(9.8)

Other

8.6

(23.3)

(16.3)

(8.0)

0.0

0.0

Net Cash Flow

(30.2)

8.7

25.3

6.2

19.3

24.3

Opening net debt/(cash)

 

 

108.5

138.2

130.1

104.8

98.6

79.3

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

0.0

Other

0.5

(0.6)

(0.1)

0.1

0.0

(0.0)

Closing net debt/(cash)

 

 

138.2

130.1

104.8

98.6

79.3

55.0

Source: Edison Investment Research, Company data

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by La Doria and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investments Pty Ltd (Corporate Authorised Representative (ACH 161 453 872) of Myonlineadvisers Pty Ltd (AFSL: 427484) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

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

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by La Doria and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investments Pty Ltd (Corporate Authorised Representative (ACH 161 453 872) of Myonlineadvisers Pty Ltd (AFSL: 427484) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. 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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

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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While a trading update might have been anticipated the departure of the CEO is a major surprise. The return of the Chairman to the CEO role as an interim measure provides an element of reassurance and continuity, as does the commitment to an increased final dividend despite a cut of 9% to FY17 EPS. The UK declines are concerning, however it is not the largest regional contributor. We believe the larger US and export market contributions and recent order intake should provide a solid foundation for future growth, with the invest and grow strategy to remain in focus.

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