La Doria continues to post good sales growth, despite the ongoing tough economic backdrop. Organic sales growth of 2.3% in H119 builds on a good H118. The important variables at this time of year are the outcomes of the seasonal campaigns and the corresponding customer negotiations. Raw materials continue to experience inflation, while customers continue to apply downward pressure to prices thus resulting in an unfavourable margin environment. Indeed, the EBITDA margin was down 50bp to 6.5% in H119. Management’s investment programme continues as planned, with €32.5m spent during the period. We leave our forecasts unchanged, and believe the current share price offers a good entry point. Our fair value rises to €14.00 (from €13.60) as we roll forward our DCF.
The cooler weather in Italy in May delayed the start of the tomato campaign, which is currently expected to finish in the first half of October. Volumes so far are slightly lower than expected, resulting in rising prices. Importantly, deliveries of fresh tomatoes are being adversely affected by changeable weather, which is causing lines to run below full capacity. As a reminder, La Doria has ‘cost-plus’ agreements with some of its strategic customers, so will be able to pass on any increased costs. This helps mitigate the risk for margin compression.
Sales growth was particularly impressive in the Vegetable line (8.6%) with strong growth in international markets, and the Sauces division (4.8%). The Red line was stable (+0.8%), while the Fruit line continued to decline (-1.7%) due to a fall in domestic consumption. EBITDA margin was down 50bp during the period due to higher costs, while the EBIT margin was down 100bp due to higher depreciation as the investment plan is underway. With customer negotiations still ongoing across the Red line, Pulses, pasta Sauces and Fruit lines, we leave our estimates unchanged at this stage.
Our DCF model indicates a fair value of €14.00 per share (from €13.60 previously as we roll forward our DCF), or c 60% upside from the current share price. La Doria trades on 9.5x FY20e P/E, a c 25% discount to its private-label peer group. On EV/EBITDA it trades at 7.0x FY20e, a c 20% 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.