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.
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).
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.
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.