Monday, 3 March 2014

Del Monte Pacific

Kim Eng on 3 Mar 2014

  • We hosted Del Monte Pacific (DMP) for post-result NDR. Interest level remains high as the company completes its USD1.675b bid to acquire Del Monte Foods (DMF). We digest the FY13 results and revise our acquisition scenario analysis.
  • 4QFY13 results minor disappointment as competition in the Philippines heats up. Losses at Indian JV continue to narrow, but break-even likely to be behind earlier schedule.
  • Latest financial details from Del Monte Foods US are lower than our earlier assumptions. Despite several quick wins for synergies, the more meaningful ones will be several years down the road. We maintain BUY with lower TP of SGD0.85.
 NDR take-aways
With the entry of strategic investors (USD75m), funding requirements are complete and there will be no dilutive equity exercises. Immediate cost savings for DMF include non-working marketing costs and IT rationalization which should yield around USD20m a year. In terms of personnel, a highly capable and newly-motivated team has remained on board. Key plans to execute over the next few years include 1) Entry into fruit beverages; 2) Entry into South America; and 3) Expansion of product range. Management targets to bring EBITDA from USD164m to USD260m, (DMF’s record year in 2011), over the next 3-4 years.

What’s Our View
We still believe this is a long-term positive deal, though investors will have to be patient. Key risks are execution and interest rates. Even assuming a bear case, the stock only trades at a post-transaction P/E of 12.6x versus global peers of 15.3x. Our new TP of SGD0.85 (previously SGD1.00) remains pegged to 12.5x FY15E base case EPS.

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