Del Monte Pacific - CIMB Securities 2015-09-04: Looking forward to 2016.

DEL MONTE PACIFIC LIMITED D03.SI 

Looking forward to 2016 


  • DMPL looks set for an earnings turnaround in FY16 even after factoring in the massive interest burden. FY4/15 was loss-making as expected. In this note, we update our earnings assumptions and introduce FY18 forecasts (our last note on Del Monte was in Sep 14). 
  • We adjust for a small new share placement and a rights issue announced in Mar 15, and update our assumptions to reflect FY15 performance. These results in a 31-34% decline in our core EPS forecasts over FY16-17. 
  • FY18 forecasts are also introduced. Our target price drops to S$0.49, based on 11.3x CY16 P/E (historical average of the -1 s.d. forward P/E of its US peers). 
  • We maintain our Add call. 



Survived the transition 

  • DMPL has competed the transition FY15 year when the company changed its financial year end from Dec to Apr, and took in all charges relating to the DMFI acquisition. This has resulted in a loss of US$38m. 
  • Cashflow generation was healthy though, with an operating cashflow of US$231.5m. Gearing – all is not lost The high net gearing (6.2x as at endFY15) is still a concern, though our analysis shows that cashflows are able to cover the interest payments. 
  • The company has one last outstanding refinancing transaction to switch US$350m of bank debt into preference shares, which will count as equity and thus lower net gearing. We assume that this will occur in FY18. 
  • We see the eventual listing of DMFI as the way out to lower the group’s net gearing to below 1.0x in the coming years. A cheap entry if all pans out At 7.2x CY16 entry multiple, this could be a cheap purchase into a well-known brand if DMFI's performance reverts to the historical norm and new initiatives help grow market share in the US. 
  • The DMPL business, consisting of the Del Monte brand in the Philippines and S&W brand in Asia/Middle East, continues to do well.


William TNG CFA | http://research.itradecimb.com/ CIMB Securities 2015-09-04
ADD Maintain ADD 0.49 Same 0.63


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