Del Monte Pacific (DMP) has completed its USD1.675b bid to acquire Del Monte Foods (DMF), which has generated high interest.
The FY13 results were slightly disappointing, with a 8% YoY decline in sales in the Philippines, attributed to product mix changes and the weakened Peso against the USD.
Management revised its sales growth guidance for the Philippines from 15% to 10% for the next period.
S&W sales continued to grow by 18% YoY, and fresh fruits are expected to help improve margins.
Immediate cost savings of USD20m per year are expected from non-working marketing costs and IT rationalization.
The company has a highly capable and motivated team, and key plans include entering the fruit beverage market, expanding into South America, and broadening its product range.
Management aims to increase EBITDA from USD164m to USD260m over the next 3-4 years.
The acquisition will not involve dilutive equity placements, with strategic investors providing USD75m and the company's debt structure being adjusted.
The company's net gearing is expected to reduce from 550% to 150%, aligning with global food companies' capital structures.
Dividends will be reduced in the short term, likely to a 33% payout from 75% in previous years, as the company focuses on debt repayment.
The financial year-end will be changed to April, and earnings may be negatively affected in the immediate term.
A recovery is expected from FY April 2015 onwards.
The company's share price is currently trading at a post-transaction P/E of 12.6x, which is lower than global peers' average of 15.3x.
The new target price of SGD0.85 is based on a 12.5x FY15E base case EPS.
Financial Highlights
FY13 Performance
Revenue: USD492.2M (up 7.1% YoY)
EBITDA: USD47.0M (down 45.1% YoY)
Core Net Profit: USD32.7M (up 5.4% YoY)
Core EPS (cts): 2.8
Net DPS (cts): 0.6
Core P/E (x): 17.5
P/BV (x): 2.8
Net Dividend Yield (%): 1.3
ROAE (%): 13.7
ROAA (%): 5.9
EV/EBITDA (x): 15.3
Net Debt/Equity (%): 65.0
4QFY13 Performance
Sales: USD156.8M (up 23.5% QoQ)
Cost of Sales: USD121.0M (up 27.0% QoQ)
Gross Profit: USD35.8M (up 13.1% QoQ)
SG&A: USD39.6M (up 113.8% QoQ)
Operating Profit: USD-3.8M (down 128.9% QoQ)
Net Finance: USD-0.8M (up 60.4% QoQ)
JV & Associates: USD-1.1M (down 15.1% QoQ)
Pretax Profit: USD-5.6M (down 156.9% QoQ)
Taxation: USD3.8M (down 195.4% QoY)
Minorities: USD0.1M (down 14.8% QoQ)
Reported Net Income: USD-1.7M (down 113.0% QoQ)
Recurring NP: USD13.2M (up 48.3% QoQ)
EPS (US cents): 1.0
DPS (USD cents): 0.0
Gross Margin (%): 22.8 (down 2.1% QoQ)
Operating Margin (%): -2.4 (down 12.8% QoQ)
Net Margin (%): 8.4 (up 1.4% QoQ)
Acquisition Transaction Highlights
Funding Sources:
Company existing credit lines: USD115M (1.5%)
Bank loan: USD165M (4.0%)
Bank loan: USD350M (3.5%)
Strategic investors: USD75M (10% minority stake)
Debt Financing at Acquired Company Level: USD970M (5.6%)
Total Price (Equity + Debt): USD1675M
Post-Transaction Financial Metrics:
Immediate Post Transaction PER (x): 12.0
Immediate Post Transaction EV/EBITDA (x): 9.4
New Net-Debt/Equity (x): 5.7
Interest Cover (x): 4.2
Net Debt/EBITDA (x): 6.9
EBITDA/Interest Expense (x): 3.1
Case Scenarios for FY15F
Bear Case:
Revenue: USD1,647.0M
EBITDA: USD162.0M
Net Income: USD17.8M
Ordinary EPS (USD): 3.8
Base Case:
Revenue: USD1,830.0M
EBITDA: USD180.0M
Net Income: USD35.9M
Ordinary EPS (USD): 5.2
Bull Case:
Revenue: USD2,104.5M
EBITDA: USD207.0M
Net Income: USD53.5M
Ordinary EPS (USD): 6.6
Peer Comparisons
Singapore-listed F&B
Company
Code
Rating
Share Price (SGD)
Target Price (SGD)
Market Cap (USD m)
2014 P/E (x)
2015 P/E (x)
2016 P/E (x)
3-yr EPS CAGR (%)
EV/EBITDA (x)
PB 2014 (x)
ROE 2014 (%)
Div Yield 2015 (%)
SUPER GROUP
SUPER SP
Buy
3.69
4.45
1,625
20.7
18.4
17.3
13
14.8
4.1
18
19
YEO HIAP SENG
YHS SP
Hold
2.18
2.55
989
38.9
31.1
NA
6
7.8
2.4
4
5
DEL MONTE PACIFIC
DELM SP
Buy
0.61
1.00
625
14.5
11.2
NA
6
9.3
2.3
16
20
PETRA FOODS
PETRA SP
NR
3.61
NA
1,742
24.5
20.6
19.0
65
14.9
4.4
17
19
MALEE SAMPRAN
MALEE TE
Buy
32.75
47.00
141
8.9
6.0
5.1
47
6.9
3.2
35
41
THAI UNION FROZEN
TUF TB
Underweight
68.00
64.00
2,392
15.9
13.7
10.7
37
12.7
1.8
12
12
ASEAN-listed F&B
Company
Code
Rating
Share Price (SGD)
Target Price (SGD)
Market Cap (USD m)
2014 P/E (x)
2015 P/E (x)
2016 P/E (x)
3-yr EPS CAGR (%)
EV/EBITDA (x)
PB 2014 (x)
ROE 2014 (%)
Div Yield 2015 (%)
NESTLE (MYR)
NESZ MK
Hold
66.80
62.00
4,781
25.7
22.3
21.4
9
17.4
19.4
75
83
UNIVERSAL ROBINA
URC PM
Buy
140
160
6,842
28.9
25.2
21.9
12
17.6
5.7
20
21
PEPSI-COLA (PHIL)
PIP PM
Buy
5.06
6.05
419
18.1
15.8
12.7
12
6.3
2.5
15
16
RFM CORP
RFM PM
Buy
5.75
6.65
407
21.3
18.0
NA
NA
12.2
2.7
13
12
VIETNAM DAIRY
VNM VN
Buy
141,000
185,700
5,570
15.2
12.9
10.9
18
10.0
6.1
40
42
KINH DO CORP
KDC VN
NR
57,000
NA
446
19.1
16.5
NA
NA
9.2
1.8
10
11
Global F&B
Company
Code
Rating
Share Price (USD)
Target Price (USD)
Market Cap (USD m)
2014 P/E (x)
2015 P/E (x)
2016 P/E (x)
3-yr EPS CAGR (%)
EV/EBITDA (x)
PB 2014 (x)
ROE 2014 (%)
Div Yield 2015 (%)
DEL MONTE FRESH
FDP US
NR
26.46
NA
1,488
13.7
12.2
NA
NA
8.3
NA
NA
NA
DOLE FOOD
DOLE US
NR
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
CAMPBELL
CPB US
NR
43.31
NA
13,643
17.1
16.4
15.4
2
11.0
8.5
50
44
KELLOGG
K US
NR
60.69
NA
21,951
15.2
14.3
13.4
6
10.6
5.4
35
32
MONDELEZ
MDLZ US
NR
34.03
NA
59,681
20.0
17.8
15.8
13
13.4
1.7
9
10
TYSON FOODS
TSN US
NR
39.45
NA
13,424
13.7
12.9
10.6
19
6.9
2.1
15
14
HERSHEY
HSY US
NR
105.82
NA
23,683
25.6
23.2
20.8
11
14.4
12.9
50
45
CONAGRA FOODS
CAG US
NR
28.40
NA
11,940
12.0
10.4
9.5
8
9.1
1.8
15
16
Key Takeaways
The acquisition is seen as a long-term positive, but investors must be patient due to short-term challenges.
Key risks include execution and interest rate fluctuations.
Despite the bear case, the stock is undervalued compared to global peers, with a P/E of 12.6x versus 15.3x.
The target price of SGD0.85 is based on a 12.5x P/E on FY15E base case EPS.
The company's financial performance is expected to improve over the next few years with the execution of key strategies and the consolidation of the acquired business.
