F Equity Research Q&A Report Full report
United Kingdom $BloombergCode$ QA_CR
Total Produce Buy (Not Rated)
Ireland | Food | MCAP EUR 911.4m Target Price EUR 2.70 (none) Current Price EUR 2.35 Up/downside 14.9% Change in TP none This report is intended for [email protected]. Unauthorized redistribution of this prohibited 05 March 2018 Change in EPS -14.9% 18E / 7.9% 19E
Q. Is the Dole deal the way to go? On 1 February, Total Produce announced the acquisition of a 45% stake in the privately-owned Dole Food Company for USD300m in cash. In addition, Total Produce has the right to gradually acquire the remaining 55% for set prices. Is this transformational deal (Dole’s EBITDA is double that of Total Produce) a step in the right direction? A. Dole is a ticket to the tropics We believe there is a clear strategic rationale for getting a foot in the door at Dole, as it will allow Total Produce to diversify its activities into higher- growth regions (North America makes up 61% of Dole’s sales vs. 25% for Total Produce) and categories (tropical fruit, c. 50% of Dole’s portfolio). Furthermore, this deal is set to give Total Produce a foothold in the most iconic fresh produce brand worldwide. From a financial standpoint, we believe the deal (especially the right to eventually acquire all of the shares in Dole) will generate strong financial returns (c. 30% accretion to the group’s DCF value), as a comparison of businesses implies clear upward potential in terms of operational management. We value the “new” Total Produce at EUR2.70 per share, up from EUR2.25, and upgrade our rating from Hold to Buy.
Main author Anton Brink Equity Research Analyst [email protected] +31 20 563 23 61
Food research team Biographies at the end of the report
IMPORTANT. Please refer to the last page of this report for keplercheuvreux.com “Important disclosures” and analyst(s) certifications. This research is the product of Kepler Cheuvreux, which is authorised and regulated by the Autorité des Marchés Financiers in France. Total Produce Buy TP EUR 2.70
Beyond the Q.
Investment Case
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Why the stock is a Buy We upgrade our rating for Total Produce from Hold to Buy and raise our TP from EUR2.25 to EUR2.70 (15% upside at today’s price).The Dole deal will pave the way for the creation of significant additional shareholder value, especially if one accounts for Total Produce’s rights to acquire additional equity stakes at set prices in a second (additional 6% for USD12m) and a third tranche (remaining 49% for USD450m). Given that we expect Total Produce’s involvement to improve Dole’s operating performance and cash flow generation, particularly when Total Produce’s management obtains control, the tranches come at attractive multiples (7.9x 2017E EV/EBITDA for the first tranche, 5.3x 2018E for the second and 6.5x 2020E for the third). Our TP is based on the sum of two DCF analyses, one focused on Total Produce and one on Dole. Why did we have the previous rating? We initiated coverage on Total Produce with a Hold rating (TP EUR2.25) in October 2017. Although we acknowledged that Total Produce was a clear top performer in the fresh produce distribution industry with: 1) excellent working capital management; 2) high asset turnovers; and 3) a solid track record of raising its ROIC via successful M&A, we questioned whether there was sufficient upside for the shares without significant new M&A. As it now has the opportunity to improve operating performance in the sizeable and sub-optimally managed Dole, our opinion has improved drastically. Valuation model We value the renewed Total Produce on the basis of two standalone DCFs: one for Total Produce and one for Dole. Given the structure of the deal, we model two scenarios: 1) a scenario in which Total Produce obtains a 51% equity stake in Dole, which points to a TP of EUR2.40; and 2) a scenario in which Total Produce secures 100% by buying the third tranche in 2021E, which indicates a TP of EUR3. Given that the structure of the deal is very much focused on eventually gaining full control of Dole, we have a preference for our second scenario. Nevertheless, we apply a 10% discount to the outcome of the latter, as we see above-average risks in terms of execution and pending litigation. We value Total Produce at EUR2.70 per share, up from EUR2.25.
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Total Produce Buy TP EUR 2.70
Company summary Market data After the announced Dole deal, Total Produce is the world's largest fresh produce provider to Bloomberg TOT ID retailers and foodservice with approximately EUR6bn in sales on a full year basis (EUR3.7bn excl. JVs Reuters T7O.I & associates). A key part of Total Produce’s strategy is growth by acquisition, displayed by continuous Market cap (EUR) 911.4m Free float (%) 85.0 M&A activity. No. of shares outstanding (m) 388 Management Key shareholders 3m avg. daily vol (EURm) 2.3 Rory Byrne, CEO Balkan Investment & subs 12.6% YTD abs. performance -8.2% Frank Davis, CFO Franklin Templeton 9.7% 52-week high (EUR) 2.56
Carl McCann, Chairman GMT Capital 8.9% 52-week low (EUR) 1.93 This report is intended for [email protected]. Unauthorized redistribution of this prohibited
Strengths Weaknesses Proven track record in M&A Thin margins Strong balance sheet Large exposure to low volume growth whole fresh markets Excellent working capital management & high asset turnover Dependence on M&A success A diversified produce portfolio Dependence on key management personnel Opportunities Threats Expanding towards organic and fresh-cut Fruit and vegetables deflation Increasing exposure to higher-growth regions Oversupply in the industry Adding value to products or services Currency fluctuations Vertical and/or horizontal integration Concentration of customers
Key financials (please see the end of this report for full financials) Income Statement (EURm) 2014 2015 2016 2017 2018E 2019E 1 year performance 2011
Sales 2,667.0 2,875.4 3,105.5 3,674.0 3,736.9 3,833.6 2.6 % Change 1.1% 7.8% 8.0% 18.3% 1.7% 2.6% EBITDA adjusted 74.1 82.9 94.9 104.4 157.2 227.4 2.5 EBIT adjusted 53.5 55.8 65.2 80.1 81.7 100.8 2.4 Adjusted EBIT margin (%) 2.0% 1.9% 2.1% 2.2% 2.2% 2.6% Net profit reported 29.8 30.0 28.5 47.8 35.3 50.2 2.3 Net profit adjusted 32.0 35.4 39.1 43.9 44.4 59.2 2.2
Cash flow statement (EURm) 2.1 CF from operating activities 47.5 66.5 45.6 47.2 61.3 66.6 2.0 Capex -12.0 -22.3 -23.1 -41.5 -24.8 -20.1 Free cash flow 35.5 44.2 22.5 5.7 36.6 46.6 1.9 1.8 Balance sheet (EURm) Mar 17 Jun 17 Sep 17 Dec 17 Mar 18 Intangible assets 162.6 190.5 220.5 281.1 271.7 261.7 Price DJ Stoxx 600 (rebased)
Tangible assets 137.9 142.0 145.2 167.4 172.2 172.6 Fin. & other non-current assets 84.0 101.4 125.4 139.2 389.1 424.0 Sales breakdown 2017 2011
Total shareholders' equity 285.4 313.8 298.9 339.6 512.1 554.2 Eurozone Pension provisions 27.5 17.2 37.8 22.0 20.5 19.0
Liabilities and provisions 522.0 581.9 664.7 790.3 886.5 887.2 24.5%
Net financial debt 16.8 18.1 48.4 113.1 194.6 188.8 40.0% Working capital requirement -20.4 -29.6 -21.8 -11.2 -12.0 -19.9 Non-Eurozone Europe Invested capital 415.4 455.6 523.2 631.4 876.0 893.5
Per share data (EUR) EPS adj and fully diluted 0.10 0.11 0.12 0.13 0.11 0.15 35.5% International (North- America) Cash flow per share 0.14 0.20 0.14 0.15 0.16 0.17 Book value per share 0.66 0.72 0.71 0.80 1.10 1.20
DPS 0.02 0.03 0.03 0.03 0.03 0.04 Profit breakdown 2017 2011
Ratios ROE 14.7% 15.5% 16.8% 18.1% 12.9% 13.3% ROIC 10.5% 9.9% 10.2% 10.3% 8.1% 8.5% Eurozone Gearing 5.9% 5.8% 16.2% 33.3% 38.0% 34.1% 15 27 Valuation P/E adjusted and fully diluted 10.5 11.5 13.1 15.8 20.7 15.6 Non-Eurozone Europe P/CF 7.0 6.0 11.1 14.6 14.9 13.7 P/BV 1.5 1.7 2.2 2.6 2.1 2.0 Dividend yield (%) 2.3% 2.1% 1.8% 1.5% 1.4% 1.5% 42 FCF yield (%) 10.6% 11.0% 4.5% 0.8% 4.0% 5.1% International EV/Sales 0.2 0.2 0.3 0.3 0.4 0.4 EV/EBITDA 7.6 7.8 9.1 10.9 9.1 6.2
EV/EBIT 10.5 11.6 13.3 14.1 17.5 13.9 EV/IC 1.4 1.4 1.7 1.8 1.6 1.6
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Total Produce Buy TP EUR 2.70
Q&A in six charts
Chart 1: A transformational deal, combined EUR7.4bn sales Chart 2: Dole is complementary to TP’s EU focused portfolio
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6
4 North America Europe 2 RoW
0 Total Peer 1 Total Dole Peer 2 Peer 3 Peer 4 Produce Produce + Dole
Source: Total Produce Source: Dole
Chart 3: … and further diversifies TP’s produce portfolio Chart 4: Dole has a more asset-heavy business model…
Bananas 2500 12% 3% 10% 7% 2000 Value-added 6% vegetables 8% 1500 Diversified Fruit 8% 43% 6% 1000 4% Pineapples 13% 500 2% Fresh-Packed Vegetables 0 0% 20% Total Produce Dole Berries Invested capital ROIC
Source: Dole Source: Kepler Cheuvreux
Chart 5: …but there is clear potential for SG&A improvement Chart 6: Significant upside in most likely scenario (i.e. 100%)
5% 3.5
4% 3 3 3% 2.7
2% 2.5 2.4
1%
0% 2 Total Produce Dole 51% stake scenario 100% stake scenario KECH fair value
Source: Total Produce, Dole, Kepler Cheuvreux Source: Kepler Cheuvreux
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Total Produce Buy TP EUR 2.70
Contents
Q&A in six charts 4 Is the Dole deal the way to go? 6 This report is intended for [email protected]. Unauthorized redistribution of this prohibited A transformational deal 6 Transaction structure 7
Clear strategic rationale 9 Increasing exposure to growing US market 9 Broadening the produce portfolio 13 Clear drivers to add value at Dole 16 Management has substantial M&A experience 18 Sound financial returns 19 The multiple (8.9x) in more detail 19 Modelling Dole 20 Above-average risks lead us to TP EUR2.75 26 Investment conclusion 28 Clear strategic rationale 28 Sound financial returns 29
Research ratings and important disclosures 34 Legal and disclosure information 36
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Total Produce Buy TP EUR 2.70
Is the Dole deal the way to go? On 1 February, Total Produce announced that it would acquire a 45% equity stake in the privately owned Dole Food Company for USD300m in cash. While we see strong strategic rationale for this deal, the most important question to ask (as with any deal) is whether the right price was paid. We aim to answer this This report is intended for [email protected]. Unauthorized redistribution of this prohibited question in this report.
A transformational deal The acquisition of a 45% stake in Dole is a transformational transaction for Total Produce, given the following: 1. The 45% equity deal was valued at USD300m, compared to Total Produce’s market cap of c. EUR780m before the announcement of the deal. In order to preserve its strong balance sheet, Total Produce issued c. 19% of additional share capital (USD180m = EUR145m) to finance a large part of the deal. The remainder will be debt financed. 2. The deal has been structured with a view to Total Produce becoming the controlling owner of Dole. After the current USD300m acquisition of a 45% equity stake, Total Produce will have the option to: 1) buy an additional 6% for USD2m per 1%; and 2) secure the remaining 49% for a price of 9x EBITDA minus net debt, capped at a maximum of USD450m (see the following section on the transaction structure for details).
3. The deal creates the clear world leader in the fragmented produce industry, Total Produce’s with combined sales of over EUR7.4bn (Chart 7). The annual turnover of annual turnover to Total Produce, including JVs and associates, is set to increase to increase to c. approximately EUR6bn in the first full fiscal year after the closing (2019E). EUR6bn
Chart 7: Transaction brings together the second- and third-ranked players in the industry, with combined sales of EUR7.4bn
8
6
4
2
0 Total Peer 1 Total Dole Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Produce Produce + Dole
Source: Dole, Total Produce
4. The deal rebalances the business: Total Produce will transform from a European player to a more balanced European and North American company. This is an attractive development, as the North American fruit and vegetable (F&V) market clearly has more appeal.
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Total Produce Buy TP EUR 2.70
5. The deal significantly enhances Total Produce’s presence in high-growth tropical fruit categories. Dole has first and third positions in bananas in North America and Europe, and second and third positions in pineapples in North America and Europe. 6. The deal brings Total Produce back to a backward-integrated business model (as with Fyffes). Although this will negatively impact Total Produce’s This report is intended for [email protected]. Unauthorized redistribution of this prohibited asset-light model, it is an essential prerequisite to establish a leading position in tropical fruit in North America. Transaction structure Three-tranche acquisition The Dole deal is organised as a three-phase acquisition: First, Total Produce will acquire 45% of Dole’s common stock from David Murdock, who is the sole owner of Dole, for USD300m in cash (the “first tranche”). At any time after the closing of the sale of the first tranche, Total Produce Second tranche: has the right (but not the obligation) to acquire (in one or more tranches of USD2m per 1% 1%) up to an additional 6% of Dole common stock for a payment of USD2m equity for each 1% stake (the “second tranche”), payable in cash. Following the second anniversary of the sale of the first tranche, Total Produce has the right (but not the obligation) to acquire the balance of Dole common stock (the “third tranche”). o In this case, the third-tranche purchase price is to be calculated based on 9x three-year average EBITDA less net debt. o The third tranche purchase price cannot be less than USD250m or exceed USD450m. o It is payable in cash or Total Produce stock, as agreed by both parties.
Table 1: Initial deal overview USDm Multiple EURm Dole Stake 45% Expected close Mid 2018 Price 300 EBITDA last fiscal year 215.6 8.9x
Company guidance Short-term cost savings 15 Mid-term synergy potential 35
Financing Rights issue 145 Costs 4 Net proceeds 141 Additional debt 100 Number of new shares 63 Number of shares old 325 Number of shares new 388
Source: Total Produce, Dole
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Total Produce Buy TP EUR 2.70
Liquidity event Following the fifth anniversary of the first tranche, in the event that Total Produce If Total Produce has not exercised its right to acquire the third tranche, David Murdock is permitted does not want to sell 100% of Dole’s common stock. Nevertheless, the downside risk of such an 100% of Dole, event is limited by a price protection mechanism in favour of Total Produce related David Murdock can sell to the proceeds of a sale: Total Produce would be the first to get its investment This report is intended for [email protected]. Unauthorized redistribution of this prohibited money back (USD300-312m) before the Dole owners are reimbursed. Governance In terms of governance, the Dole deal is very much organised like a joint venture: The Dole board of directors will comprise six members post-acquisition, three of which are to be appointed by Total Produce and three by David Murdock. David Murdock will remain Dole’s Chairman, and Carl McCann (Total Produce’s Chairman) will be Dole’s Vice Chairman. Each of the board committees will include at least one Total Produce appointee and one Murdock appointee. Major decisions will require the consent of at least one Total Produce appointee and one Murdock appointee.
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Total Produce Buy TP EUR 2.70
Clear strategic rationale An investment in Dole represents a clear strategic rationale for Total Produce, as it allows the group to diversify its activities into higher-growth regions (North America) and categories (tropical fruit, value-added vegetables). Furthermore, it provides Total Produce with a way into the most iconic fresh produce brand This report is intended for [email protected]. Unauthorized redistribution of this prohibited worldwide. A combination of three levers focused on improving operational management at Dole is expected to significantly improve its value.
Table 2: Complementary businesses with increased scale Total Produce Dole Brands Various brands Dole
Product mix Strong position across a broad range of products Bananas, pineapples, value-added fresh vegetables, grapes Bananas account for 11% of sales Bananas account for 43% of sales
Regions Europe accounts for 81% of sales North America accounts for 61% of sales
Supply chain 138 distribution centres 123,600 acres of production 15 owned and 13 operated vessels 11 cold storage facilities
Financial metrics Revenue LTM June 2017: EUR3, 995m Revenue LTM September 2017: EUR3, 583m (USD4,455m)
Adj. EBITDA LTM June 2017: EUR99m Adj. EBITDA LTM September 2017: EUR191m (USD237m) Adj. EBITDA % margin LTM June 2017: 2.5% Adj. EBITDA % margin LTM September 2017: 5.3%
Management Best-in-class total supply chain management Best-in-class brand management, production and shipping Extensive experience in bananas from Fyffes heritage
Source: Dole, Total Produce
Increasing exposure to growing US market As shown in Table 2 above, Total Produce (pre-acquisition) still had a clear dependence on Europe with 81% of sales coming from there. Over the years, Total Produce has increasingly expressed interest in the North American market by buying into a number of fresh produce businesses, the Oppenheimer Group being the largest, with estimated sales of EUR680m in 2016 (Table 3).
Table 3: Previous M&A deals to expand US presence Company name Stake and timing Amount Estimated sales (2016) EcoFarms 45% 2014 EUR2m Unknown Gambles 50% 2015 EUR12m EUR150m Progressive Produce 65% 2016 EUR38.5m USD200m Oppenheimer Group 35% 2013 & EUR43.4m EUR680m 30% 2017 Keystone Fruit Marketing Business and trading assets unknown unknown
Source: Kepler Cheuvreux
The Dole acquisition materially expands Total Produce’s business in North America. The acquisition In 2016, Dole generated sales of c. USD 4.5bn, of which 61% was accounted for by almost doubles North America (c. USD2.7bn). Cumulating Total Produce’s share in Dole (45%) with Total Produce’s North American exposure
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Total Produce Buy TP EUR 2.70
Total Produce’s existing activities almost doubles the group’s relative sales exposure to North America (Charts 8 and 9). Please note that Chart 9 below does not account for Total Produce’s North- American sales growth in 2017 (+95%), implying that in the renewed Total Produce, North America will account for c. 35-40% sales. This report is intended for [email protected]. Unauthorized redistribution of this prohibited
Chart 9: Total Produce sales by region including Chart 8: Total Produce sales by region (2016) proportionate Dole share (2016)
4% 19%
32% Europe Europe North America North America RoW 65% 81%
Source: Total Produce Source: Total Produce, Dole
The US is a very different market Compared to the European market, the US market has developed in a different direction, where organic, branded, and value-added fruit and vegetables play a Around 37% of US fresh produce significant role in the overall produce category. According to Nielsen’s 2017 The dollar share is power of produce report, organic accounted for 8% of US fresh produce retail sales in branded 2016, while value-added produce contributed a similar percentage. The most striking number is the dollar share of packer brands in the US, namely 37% (Chart 10). We estimate that the dollar share of branded fresh produce in Europe is not more than 10-15%.
Chart 10: Dollar share fresh produce branded versus unbranded
70% 60% 50% 40% 30% 20% 10% 0% Unbranded Branded Private brands
2011 2016
Source: Rabobank, Euromonitor
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Total Produce Buy TP EUR 2.70
US to show double the market growth of Europe In our initiation report in October 2017, we spoke extensively about the general The EU is a larger differences between the EU and US produce markets. While the overall growth rate market, but the US has more growth of fresh fruit and vegetable consumption is rather low in Europe (c. +0.75%), North American consumption is accelerating (c. +1.5%; source: Euromonitor). Although
Europe remains the world’s leading market for fresh fruit and vegetables (sales of This report is intended for [email protected]. Unauthorized redistribution of this prohibited USD277bn in 2013 vs. USD115bn in the US; Source Marketline), much of the growth has gravitated elsewhere (Charts 11 and 12).
Chart 11: Growth in total fresh fruit consumption - volumes by region (%)
6%
4%
2%
0% World E Europe LatAm N America W Europe
-2%
2006-11 2011-16 2016-21E
Source: Rabobank, Euromonitor
Chart 12: Growth in total fresh vegetable consumption - volumes by region (%)
5%
4%
3%
2%
1%
0% World E Europe LatAm N America W Europe -1%
-2%
2006-11 2011-16 2016-21E
Source: Rabobank, Euromonitor
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Total Produce Buy TP EUR 2.70
Dole ticks the boxes for future growth Within the US, in the context of the acceleration of fruit and vegetable consumption, Dole’s portfolio Nielsen highlights the following drivers: organic, local, value-added, and branded allows it to produce. Although the sourcing for most of Dole’s product portfolio takes place in outperform market more tropical regions (e.g. Costa Rica, Honduras, Ecuador), Dole’s activities very growth much tick three of the four other boxes. The combination of the following This report is intended for [email protected]. Unauthorized redistribution of this prohibited characteristics makes this apparent: Value-added and fresh-packed vegetables together account for c. 25% of Dole’s sales (26% in 2016). While Dole does not disclose the exact contribution of organic and branded produce to its operating performance, it is clear that the group is a frontrunner in these categories: o Dole is the North American market leader in organic bananas and pineapples, boosted by the fact that it is the private label supplier of organic bananas for Whole Foods Market.
o The Dole brand is the most recognised brand for fresh fruit in Dole is the the US, evidenced by 63% unaided consumer brand awareness, strongest brand in which is 25% higher than that of its closest competitor (source: fresh produce IPSOS). A licensing agreement with the Disney film franchises in North America is an example of how Dole is engaging with target groups to retain or even improve the strength of its brand.
Chart 13: The Dole brand is iconic
Source: Dole
Charts 10, 14 and 15 indicate that all of Dole’s categories (branded, organic and value-added) have posted strong growth in the US in recent years, with organic fruit the absolute champion, reaching 18% volume growth in 2016.
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Total Produce Buy TP EUR 2.70
Chart 14: US market size (USDbn) and volume growth Chart 15: US relative market size and volume growth value- organic F&V (2016) added fruit and vegetables (2016)
3.5 18% 7%
3.0 15% 6% 2.5 5% 12% This report is intended for [email protected]. Unauthorized redistribution of this prohibited 2.0 4% 9% 1.5 3% 6% 1.0 2%
0.5 3% 1%
- 0% 0% Organic fruit Organic vegetables Value-added fruit Value-added vegetables
Market size Volume growth Market size Volume growth
Source: Nielsen Source: Nielsen
Broadening the produce portfolio Dole is strong in bananas While Total Produce has a very diversified portfolio with more than 300 fruit and Dole is number one vegetable products (Chart 16), Dole’s activities are more concentrated on tropical in tropical fruit fruit (bananas and pineapples together account for c. 50% of sales) and value-added sales and fresh-packed vegetables (c. 25% of sales) (Chart 17).
Chart 16: Total Produce - sales by category (2016) Chart 17: Dole - sales by category (2016)
1% Stone and Soft Fruit Bananas 3% 3% 5% 7% Vegetable and Value-added 5% 22% Potato 6% vegetables 7% Bananas Diversified Fruit 8% 43% 8% Salad Pineapples 18% 13% 9% Apples and Pears Fresh-Packed 11% Vegetables 11% 20% Tomato Berries
Source: Total Produce Source: Dole
Above average growth in US banana imports Banana imports to the US (Dole’s main activity) posted a c. 3.7% volume CAGR over 2009-17 (Chart 18; source: USDA). Comparing this to the general volume growth in fruit and vegetable consumption in North America (Charts 11 and 12), it indicates that Dole has significant exposure to above-average growth categories.
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Total Produce Buy TP EUR 2.70
Chart 18: US fresh banana imports (000s lbs) 2009-17
1,200,000
1,000,000
800,000 This report is intended for [email protected]. Unauthorized redistribution of this prohibited 600,000
400,000
200,000
0 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: USDA, Kepler Cheuvreux
But tropical fruits have a different business model Apart from a greater dependence on supply and demand and consumption rates of particular fruit and/or vegetable categories, Dole’s focus on tropical fruits and value- add/fresh-packed vegetables also brings a different business model than what Total Produce is currently using. Where Total Produce’s asset lightness is one of the key features of its investment case, Dole’s vertically integrated supply chain requires considerably more investments in assets (Chart 19).
Chart 19: Asset turnover ratio (2016)
3.5
3.0
2.5
2.0
1.5
1.0
0.5
- Total Produce Dole Fresh del Monte Greenyard Calavo Growers T&G Global Foods
Source: Kepler Cheuvreux
Dole is a more asset heavy business Contrary to Total Produce, which mainly manages (138) distribution centres, Dole owns c. 123,600 acres of land, a fleet of 15 vessels (13 of which are dedicated to Dole’s operations), c. 15,600 refrigerated containers, 7,000 dry containers, 5,700 chassis, and 4,500 generator sets worldwide. In addition, Dole owns 11 cold storage facilities (ten in Chile, one in Argentina) and six salad manufacturing plants (five in the US, one in Chile).
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Total Produce Buy TP EUR 2.70
Most of these assets are crucial for the successful implementation of Dole’s tropical Asset heaviness is fruit business model, which allows for year-round supply from the same sources inherent to the across Latin America (vs. Total Produce’s business, which sources from many regions tropical fruits business model across the world). This relative concentration of sourcing allows Dole to control the entire supply chain right through to retailers’ ripening centres to optimise efficiency and cost structures. This report is intended for [email protected]. Unauthorized redistribution of this prohibited Resulting in higher operating leverage, and more volatility of results Tables 4 and 5 show the difference between Total Produce’s and Dole’s cost base. While it is clear that Dole’s business model allows for higher operating margins, earnings come with greater volatility. Backward integration entails greater exposure to changing commodity prices and raw product costs. In addition, one can see that the costs of goods sold are much greater at Dole, as distribution costs fall within this line item. Total Produce’s external distribution costs are reported as operating expenses. Although we see a clear opportunity for Total Produce to improve Dole’s EBIT performance, we also realize that Total Produce’s asset lightness and the consequent limited degree of earnings volatility have been attractive features for its investors. In that sense, the renewed Total Produce may, to a certain degree, attract a different investor profile.
Table 4: Total Produce - consolidated operating performance 2014-17E (EURm) 2014 2015 2016 2017 Sales 2,667 2,875 3,105 3,674 Costs of Goods sold 2,302 2,479 2,673 3,182 Gross profit 365 396 433 492 % of sales 13.7% 13.8% 13.9% 13.4% Operating expenses -324 -351 -380 -424 % of sales -12.2% -12.2% -12.2% -11.5% Operating income 41 46 53 70 % of sales 1.5% 1.6% 1.7% 1.9%
Source: Total Produce, Kepler Cheuvreux
Table 5: Dole - operating performance 2014-17E (USDm) 2014 2015 2016 2017E Sales 4786 4646 4507 4400 Costs of Goods sold -4453 -4309 -4239 4086 Gross profit 334 337 269 321 % of sales 7.0% 7.3% 6.0% 7.3% SG&A -248.7 -234.1 -193.1 -200.6 % of sales -5.2% -5.0% -4.3% -4.6% Operating income excl. 84.8 103.1 75.6 120.4 litigation & asset sales % of sales 1.8% 2.2% 1.7% 2.7%
Source: Dole, Kepler Cheuvreux
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Total Produce Buy TP EUR 2.70
Clear drivers to add value at Dole Total Produce sees opportunity in a number of areas that should drive Dole’s value: revenue synergies, cost savings, capex management, the selling off of non-core assets, improvements in working capital management and other cash contributory factors. Below, we discuss the opportunities with regard to these levers with reference to communication by Total Produce’s management. This report is intended for [email protected]. Unauthorized redistribution of this prohibited “Revenue synergies by leveraging respective geographical strengths and relationships, and increased resilience driven by diversification.”
Relationships with retail, wholesale, and foodservice customers in the fresh segment Clear opportunity tend to be long-term, as supply chains are in perfect sync to deal with the for revenue perishability of produce. The relationship that Dole has with e.g. Walmart, Kroger, synergies and BAMA may help Total Produce to gain access to these large players in produce categories where Dole has no presence. In that regard, it is clearly helpful that the level of overlap between the companies is very low (e.g. Total Produce has no North American activities in bananas). Conversely, there is an opportunity to channel the Dole brand through Total Produce’s distribution network. “Deliver annualised synergies and cost savings estimated at USD15-20m in the short term and USD35m in the medium term.” Helped by its experience gained from Fyffes1, which was also a backward-integrated USD15-20m cost business with a focus on bananas, management has indicated that it sees an savings in the short opportunity to reduce costs in the Dole supply chain by USD15-20m in the short- term term. Shipping arrangements look set to be one priority. Another factor that is expected to help is lower operating expenses, obtained by shedding some of Dole’s excess real estate holdings and reorganising its non-competitive berry operations in the US. In the medium term, after gaining control of Dole, there is likely to be an opportunity to generate an additional USD15-20m in annual synergies, according to Total Produce’s management. Although management has not been very specific about the exact drivers of these synergies, improving Dole’s forward integration will probably to be the key focus area. Moreover, revenue synergies on the basis of leveraging on the Dole brand in Total Produce’s current activities will also come into play. “Focused capex management over the next three years, active portfolio management with a review of non-core assets and a focus on working capital and cash generation.”
Total Produce’s management has communicated that after a number of more Significant Capex capital-intensive years due to farm acquisitions and the delivery of three new West reduction in the Coast vessels, capex can be reduced significantly in the next three years2. next three years Afterwards, higher capex needs related to a renewal of the East Coast fleet are likely.
1 The entire management team worked for Total Produce’s predecessor, Fyffes. 2 We model USD80m in 2018-20E (USD60m maintenance & USD20m expansionary) vs. USD185m on average over 2014-16.
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Another important factor in the Dole investment case is the presence of a number of assets for sale/actively marketed property, which are expected to bring in cash to reduce Dole’s significant indebtedness (4.4x net debt/credit agreement adjusted EBITDA). Based on Dole’s most recent reported financial figures (9M 2017, 7 October 2017), these were: This report is intended for [email protected]. Unauthorized redistribution of this prohibited - Real estate assets in Sweden with a net book value of USD10.7m. - Around 14,300 acres of actively marketed as idle land for sale in Oahu, Hawaii, with a book value of USD105.5m. Packaged salads business may be reviewed In the mid-term, we believe a sell-off of the packaged salads (sales of c. USD900m in A sell-off of non- 2016) and/or the fresh packed vegetable business (sales of c. USD200m in 2016) is core businesses also a possibility. In the communication we have had with Total Produce’s might be management in the past, it has always emphasised the difficulty of generating a considered going forward 10%+ return on capital levels in these sorts of businesses. This is confirmed in Chart 20, which compares the return on invested capital levels of Total Produce and Dole in 2016. In our view, the value-added businesses will be scrutinised closely, as the level of synergies with the rest of Total Produce’s business will also be smaller.
Chart 20: Return on invested capital comparison Total Produce versus Dole (2016)
2500 12.0%
2000 10.0% 8.0% 1500 6.0% 1000 4.0%
500 2.0%
0 0.0% Total Produce Dole
Invested capital ROIC
Source: Total Produce, Dole
Cash conversion set to improve The last element of value creation at Dole focuses on the improvement in working Room for minor capital and cash generation levels. Although Total Produce’s management has working capital indicated that we should not expect major working capital changes, Total Produce improvements will try to make some minor improvements. See Chart 21 for a comparison of working capital management by the large players in the fresh produce industry. The other main factors that are set to improve cash generation are: 1) a lowering of capex; 2) a reduction in outstanding debt, resulting in lower interest costs; and 3) the end of litigation costs over Dole’s 2013 buyout.
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Total Produce Buy TP EUR 2.70
Chart 21: Working capital management in the fresh produce industry (2016)
20.0%
15.0%
10.0% This report is intended for [email protected]. Unauthorized redistribution of this prohibited
5.0%
0.0% Total Produce Fresh del Monte Dole Greenyard Calavo Growers T&G Global Foods -5.0%
WC/Sales BS (2016) WC/Sales incl. off-BS receivables (2016)
Source: Total Produce, Fresh del Monte, Dole, Greenyard Foods, Calavo Growers, T&G Global, Kepler Cheuvreux
Management has substantial M&A experience
Apart from the strategic factors mentioned in this section, we believe the M&A Strong track record experience of Total Produce’s management is also worth highlighting. As elaborated in raising ROIC on in our October 2017 initiation report (An apple a day keeps the doctor away), Total levels at acquired companies Produce’s acquisition activity since spinning off from Fyffes has resulted in an increase in the group’s ROIC levels to 10-12%. Although the acquisition of Dole will have a clear ROIC dilutive effect on Total Produce (especially when consolidating), this may provide some comfort with regard to the achievement of future ROIC enhancement. Another important element of the deal is that Total Produce will initially not have control over Dole. Although the risks of peculiar decisions made by Dole’s management are limited by a JV governance structure with equal decision rights for Dole and Total Produce managers (see paragraph on Transaction structure), this may be considered a suboptimal situation given David Murdock’s past dealing with minority shareholders (settling for claims that he short-changed shareholders in 2013 when he took the company private in a USD1.2bn buyout). A mitigating factor is Total Produce’s experience with minority stakes. Keeping experienced managers with access to important customer relationships in place is an aspect that should not be underestimated in the fresh produce distribution industry.
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Total Produce Buy TP EUR 2.70
Sound financial returns The transformational deal in the US is expected to generate sound financial returns, and we like the fact that it further diversifies Total Produce. We estimate that this deal could add c. 30% to the group’s DCF value if Total Produce executes its rights to acquire the second and third tranches in time. This report is intended for [email protected]. Unauthorized redistribution of this prohibited Nevertheless, to account for the acquisition’s above average risk profile, we apply a 10% discount to what we believe is a probable DCF scenario. We arrive at a EUR2.70 target price.
The multiple (8.9x) in more detail A good deal peer-wise At first glance, the transaction multiple of the Dole deal may be considered high, at c. 8.9x 2016 EV/EBITDA, in comparison to Total Produce’s historical M&A activity. However, an important difference in this context is the asset-light nature of the businesses that Total Produce normally tends to buy versus the backward- integrated Dole model. Whereas Total Produce’s former M&A deals were in particular focused on gaining access to commercial relationships with suppliers and customers, this transaction encompasses a much wider range of assets (e.g. production land and vessels), evidenced by the P/BV multiple (c. 1.4x). The deal multiples in recent acquisitions of businesses comparable to Dole confirm the validity of higher EV/EBITDA multiples in these cases.
Table 6: Deal multiples - backward-integrated fresh produce distributors Target Acquirer Year Deal multiple (EV/EBITDA) Chiquita Cutrale October 2014 10.4 Fyffes Sumitomo December 2016 11.1 Dole Total Produce February 2018 8.9
Source: Reuters
Ongoing improvements already apparent, 2017 multiple estimated at 7.7x Another important factor in this regard is the use of the 2016 adj. EBITDA 7.7x multiple when (USD216m) in the 8.9x multiple. Given that FY 2017 is already behind us and that accounting for Dole’s Q3 2017 statement indicates a significant improvement in operating EBITDA growth in performance, we believe it may be justified to use 2017E numbers instead. If we use 2017E adj. EBITDA 9M 2017 (USD231) plus an estimate for Q4 (USD14m), we arrive at a significantly lower deal multiple, namely c. 7.7x EV/EBITDA. We see this as attractive for a business that we expect to show 2-4% organic growth levels and USD15-20m short-term cost savings potential (c. 6-8% 2017E EBITDA). Other factors in play In addition, we believe there a number of other factors in play in this particular investment case. Although our estimates only have a minor effect on EV (c. +USD46m), we highlight them below.
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Positives
- The sale of idle land in Hawaii (net book value October 2017: USD105.5m) and real estate assets in Sweden (book value October 2017: USD10.7m). We assume a present value of c. 1.1x the book value as of October 2017, i.e. USD132m. This report is intended for [email protected]. Unauthorized redistribution of this prohibited - The sale of excess real estate. We assume net proceeds of c. USD40m in 2019E.
- Investments in JVs and associates, for which we use book value (c. USD25m as of October 2017) as a proxy for fair value. Negatives
- Net benefit plan liabilities. We assume that benefit plan liabilities could exceed benefit plan assets by an estimated USD150m, accounting for the interest rate changes seen in 2017. In December 2016, the pension funding gap was USD172.1m.
- Litigation reserves and costs. Dole is subject to a number of legal proceedings, investigations, and inquiries that could result in an adverse effect on its cash flows. While the greatest cash flow drag is due to be eliminated by a USD74m settlement payment in March-April (relating to Dole’s role in David Murdock’s short-changing activities), this remains a risk factor in the investment case. With regard to the financial valuation of these risks, we hang on to the book value of litigation costs and reserves as of December 2016 minus the USD74m cash payment, implying that a negative PV of c. USD37m still stands. Modelling Dole
Total Produce expects the recently announced Dole deal to be completed in mid- Most likely scenario 2018. Given the structure of the deal, we have opted to model two DCF scenarios: 1) brings us to value Total Produce owning a 51% equity stake in Dole; and 2) Total Produce obtaining Total Produce at 100% by buying the third tranche in 2021E. In both cases, the acquisition is value- c. EUR3 accretive. In scenario one, we value the new Total Produce at c. EUR2.40; in scenario two (which we believe is the most likely scenario if disastrous negative surprises do not materialise), we value the new Total Produce at c. EUR3, implying c. 28% upside from the latest closing price. Scenario one: Total Produce worth EUR2.40 In scenario one, in which we only account for the acquisition of the 51% minority stake in Dole, we value Total Produce at EUR2.40. In this scenario, we apply the following assumptions for our Dole DCF:
- An 8.7% WACC calculated on the basis of the inverse of the paid EV/EBITDA multiple (Table 7).
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Table 7: Dole - WACC D&A / Sales 2.2% EV/EBITDA multiple 8.9x Inverse of EV/EBITDA multiple 11.2% Inverse multiple ex D&A 9.0% Inverse ex D&A * (1-t) 6.6% WACC 8.7%
Source: Kepler Cheuvreux This report is intended for [email protected]. Unauthorized redistribution of this prohibited
- Three percent top-line growth in the explicit forecast period (2018-27E), based on Dole’s favourable positioning in terms of region, branding, and organic produce. The negative top-line trend seen in recent years has mainly related to the disposal of non-core businesses. We use a 2.0% LT growth rate to calculate the terminal value.
- An initial 5.7% adj. EBITDA margin assumption, expanding to c. 6-6.1% from 2020E when USD20m cost savings/synergies are realised. In this regard, we expect Dole to have already improved margins in 2017-18E by laying off activities with very limited/no operating-line contribution (mainly Swedish fresh fruit procurement and distribution operation, sales of USD337m in 2016). Conservatively, we do not assume mid-term synergies to come through fully until there is the certainty that Total Produce has control over Dole, which we assume will not happen until the third tranche is bought.
- A 27.5% corporate tax rate based on management guidance of a mid- 20% to 30% tax rate.
- After three years and capex of c. USD80m, we believe that Dole will have to invest in a new vessel/renewed vessels, leading to a capex hike in 2021-22E. In our terminal value calculation, we assume a 105% capex/depreciation ratio.
- Restructuring charges of USD20m in 2018E, of which c. USD16m relates to the restructuring of Dole’s US berry operations. The remainder of the restructuring charges over 2018-21E is related to achieving the cost savings of USD20m.
- One-off deal costs of USD10m in 2018E, and USD40m in net proceeds from the sale of excess real estate assets in 2019E.
- Minor working capital improvements in payables management in 2018E and 2019E. We believe that advice by Total Produce’s management can bring payables to 8% of sales from a 6.6% base in 2016. See Table 8 for a comparison of working capital levels at Total Produce and Dole.
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Table 8: Working capital comparison Total Produce versus Dole 2015-16 Total Produce (USDm) 2015 2016 Receivables 279 318 Inventories 63 61 Accounts payable 369 390
Sales 2875 3105
Working capital metrics as % of sales This report is intended for [email protected]. Unauthorized redistribution of this prohibited Receivables 9.7% 11.0% Inventories 2.2% 2.1% Accounts payable 12.8% 13.6%
Dole (USDm) 2015 2016 Receivables 550 556 Inventories 246 242 Accounts payable 277 299
Sales 4646 4507
Working capital metrics as % of sales Receivables 11.8% 12.3% Inventories 5.3% 5.4% Accounts payable 6.0% 6.6%
Source: Dole, Total Produce
Table 9: DCF of the Dole deal in 51% stake scenario (USDm) (USDm) 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E Sales 4,557 4,693 4,834 4,979 5,128 5,282 5,441 5,604 5,772 5,945 Change % 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Adj. EBITDA 260 268 276 284 292 301 310 319 329 339 margin ass. % 5.7% 5.7% 5.7% 5.7% 5.7% 5.7% 5.7% 5.7% 5.7% 5.7% Cost savings/synergies 5 10 15 20 20 20 20 20 20 20 EBITDA new 265 278 291 304 312 321 330 339 349 359 margin % 5.8% 5.9% 6.0% 6.1% 6.1% 6.1% 6.1% 6.1% 6.0% 6.0% Depreciation 98 95 93 90 100 105 103 100 98 98 % of sales 2.1% 2.0% 1.9% 1.8% 1.9% 2.0% 1.9% 1.8% 1.7% 1.6% EBITA 167 183 198 214 212 216 228 239 252 261 EBITA margin % 3.7% 3.9% 4.1% 4.3% 4.1% 4.1% 4.2% 4.3% 4.4% 4.4% Tax @ 27.5% -46 -50 -54 -57 -57 -58 -61 -64 -68 -71
Capex -80 -80 -80 -140 -120 -92 -95 -98 -101 -102 % of sales -1.8% -1.7% -1.7% -2.8% -2.3% -1.8% -1.8% -1.8% -1.8% -1.7% Depreciation 98 95 93 90 100 105 103 100 98 98 % of sales 2.2% 2.1% 2.0% 1.8% 2.0% 2.0% 1.9% 1.8% 1.7% 1.7% WC improvements 18 19 Restructuring charges -20 -5 -3 -5 One-time deal costs -10 Dole HQ sale of excess 40 real estate FCF after disposals 109 200 172 100 134 169 172 176 179 185
Discounted FCF 100 169 134 72 88 102 96 90 84 80
Source: Kepler Cheuvreux
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Table 10: Valuation Total Produce share in 51% equity stake scenario (USDm) FCF 18-19E 269 FCF 20-26E 745 Terminal value 1183 Total 2197
Minus Est. net debt Dec-2017 1233 Pension funding gap * (1-t) 109 This report is intended for [email protected]. Unauthorized redistribution of this prohibited Litigation reserves and legal costs 37 Plus Hawaii land 132 Investments 25
Equity value Dole 976
Equity value initial 45% stake Total Produce in 2018 439
FCF 19E 169 FCF 20-26E 745 Terminal value 1183 Total 2097
Minus Est. net debt Dec-2018 1194 Plus Other factors 12
Equity value Dole 891
Equity value additional 6% stake Total Produce in 2019 55
Source: Kepler Cheuvreux
Table 11 below shows our Total Produce DCF including M&A cash outflows but without the consolidation of Dole. The sum of the equity values of Total Produce’s 45% stake in Dole as of 2018E and an additional 6% as of 2019E are added on a stand-alone basis. According to our estimates, the cumulative value of these stakes has a value of USD494m (EUR402m). For the valuation of Total Produce, we use a 1.75% long-term growth rate and a 7.5% WACC.
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Table 11: DCF: Total Produce in 51% stake scenario, Dole separately valued in Table 10 (EURm) 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E EBITA 65 67 71 76 78 80 82 84 86 87 Taxes on EBITA -14 -14 -15 -16 -16 -17 -17 -18 -18 -18 NOPLAT 52 53 56 60 62 63 65 66 68 69 Depreciation 17 17 18 18 19 19 19 20 20 21 Capex PPE, ITA -25 -20 -20 -21 -21 -22 -22 -23 -23 -23 Working capital & provisions 1 8 8 3 3 3 1 1 1 1 M&A -250 -26 -8 -2 0 0 0 0 0 0 This report is intended for [email protected]. Unauthorized redistribution of this prohibited Cash flows from other JVs/associates 8 9 9 9 9 9 9 10 10 10 Cash flows to minorities -9 -10 -11 -11 -11 -12 -12 -12 -13 -13 FCF ex interest costs -206 32 52 56 60 61 60 62 63 65
Discounted FCF -191 28 42 42 42 40 36 35 33 32
Cash flows first ten years 137 cash flow thereafter 549 - Net debt at FY 2017E 113 - Pension liabilities ex tax FY 2017E 14 - Receivables factoring 39 TP Equity value ex Dole contributions 520 Dole equity value 51% stake 402 Mid-year adjustment factor 1.01 Current market value of equity 934
Diluted number of shares 390 Equity value per share 2.39 Upside 2%
Source: Kepler Cheuvreux
Scenario two: Total Produce worth EUR3 In scenario two, in which we assume a 100% acquisition of Dole in 2021E, we value Total Produce at EUR3 per share. In this scenario, we differ in terms of the following assumptions:
- Total Produce will pay USD450m for the remaining 49% stake in Dole, which is expected to occur in 2021E. This is a direct effect of the transaction structure already agreed on (see Transaction structure). Total Produce can acquire the third tranche at 9x EBITDA minus net debt, capped at USD450m. We estimate Dole’s three-year average EBITDA in 2018-20E to be c. USD280m and net debt in December 2020E to amount to c. USD960. All in all, this would imply Total Produce paying an EV/EBITDA multiple of c. 6.75x for the third tranche.
- In addition to the realisation of USD20m in cost savings over 2018-21E, Total Produce’s control will allow for an additional USD15m in synergies over time, allowing for an eventual adj. EBITDA margin of 6.3%. While for now it is not fully clear to us where these additional synergies will come from, a look at SG&A/sales ratios at Total Produce and Dole may indicate upside in terms of managing operating expenses (Chart 22). Note that we exclude distribution expenses in Total Produce’s SG&A, as we believe they fall within COGS at Dole.
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Total Produce Buy TP EUR 2.70
Chart 22: SG&A (ex-distribution expenses Total Produce) to sales in 2016
5%
4%
3% This report is intended for [email protected]. Unauthorized redistribution of this prohibited
2%
1%
0% Total Produce Dole
Source: Kepler Cheuvreux
- To realise the above-mentioned synergies, Total Produce will need an extra USD15m in restructuring charges, split over 2022-24E.
- Total Produce’s control over Dole will allow for a further improvement in payables management. We believe that Total Produce’s management can eventually bring payables to 10% of sales as of 2023E.
Table 12: DCF of the Dole deal in 100% stake scenario (USDm) (USDm) 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E Sales 4,557 4,693 4,834 4,979 5,128 5,282 5,441 5,604 5,772 5,945 Change % 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Adj. EBITDA 260 268 276 284 292 301 310 319 329 339 margin ass. % 5.7% 5.7% 5.7% 5.7% 5.7% 5.7% 5.7% 5.7% 5.7% 5.7% Cost savings/synergies 5 10 15 20 25 30 35 35 35 35 EBITDA new 265 278 291 304 317 331 345 354 364 374 margin % 5.8% 5.9% 6.0% 6.1% 6.2% 6.3% 6.3% 6.3% 6.3% 6.3% Depreciation 98 95 93 90 100 105 103 100 98 98 % of sales 2.1% 2.0% 1.9% 1.8% 1.9% 2.0% 1.9% 1.8% 1.7% 1.6% EBITA 167 183 198 214 217 226 243 254 267 276 EBITA margin % 3.7% 3.9% 4.1% 4.3% 4.2% 4.3% 4.5% 4.5% 4.6% 4.6% Tax at 27.5% -46 -50 -54 -59 -60 -62 -67 -70 -73 -76
Capex -80 -80 -80 -140 -120 -92 -95 -98 -101 -102 % of sales -1.8% -1.7% -1.7% -2.8% -2.3% -1.8% -1.8% -1.8% -1.8% -1.7% Depreciation 98 95 93 90 100 105 103 100 98 98 % of sales 2.2% 2.1% 2.0% 1.8% 2.0% 2.0% 1.9% 1.8% 1.7% 1.7% WC improvements 18 19 19 21 22 Restructuring charges -20 -5 -3 -5 -5 -5 -5 One-time deal costs -10 Dole HQ sale of excess 40 real estate FCF after disposals 109 200 172 119 153 194 178 186 190 196
Discounted FCF 100 169 134 85 101 117 99 95 89 85
Source: Kepler Cheuvreux
Given that we assume Total Produce’s control will further improve Dole’s operational management, the value of the first two tranches also increases in our second scenario (Table 13). Based on our estimates, the tranches come at attractive
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multiples, namely 7.9x 2017E EV/EBITDA for the first tranche, 5.3x 2018E for the second, and 6.5x 2020E for the third.
Table 13: Valuation of Total Produce share in 100% equity stake scenario (USDm) Equity value initial 45% stake Total Produce in 2018 (see table 10) 532
Equity value add. 6% stake Total Produce in 2019 (see table 10) 67 This report is intended for [email protected]. Unauthorized redistribution of this prohibited
FCF 2021-26E 671 Terminal Value 1328 Total 2000
Minus Est. net debt Dec-2020 962 Plus Other factors 12
Equity value Dole 49% stake Total Produce in 2021 514
Cumulative value 100% equity stake in Dole 1,113
Source: Kepler Cheuvreux
Table 14: DCF: Total Produce in 100% stake scenario, Dole separately valued in Table 13 (EURm) 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E EBITA 65 67 71 76 78 80 82 84 86 87 Taxes on EBITA -14 -14 -15 -16 -16 -17 -17 -18 -18 -18 NOPLAT 52 53 56 60 62 63 65 66 68 69 Depreciation 17 17 18 18 19 19 19 20 20 21 Capex PPE, ITA -25 -20 -20 -21 -21 -22 -22 -23 -23 -23 Working capital & provisions 1 8 8 3 3 3 1 1 1 1 M&A -250 -26 -8 -369 0 0 0 0 0 0 Cash flows from other JVs/associates 8 9 9 9 9 9 9 10 10 10 Cash flows to minorities -9 -10 -11 -11 -11 -12 -12 -12 -13 -13 FCF ex interest costs -206 32 52 -311 60 61 60 61 63 65
Discounted FCF -191 28 42 -233 42 40 36 34 33 31
Cash flows first ten years -138 cash flow thereafter 549 - net debt at FY 2017E 113 - pension funding gap 14 - receivables factoring 39 TP Equity value ex Dole contributions 245 Dole equity value 100% stake 905 Mid-year adjustment factor 1.01 Current market value of equity 1165
Diluted number of shares 390 Equity value per share 2.98 Upside 27%
Source: Kepler Cheuvreux
Above-average risks lead us to TP EUR2.70 If all goes according to plan, it is likely, in our view, that Total Produce will own 100% of Dole in five years’ time. Albeit there is undeniable uncertainty in terms of the timing of a lot of the cash flows described in our second scenario, we believe there is clear upside potential to the deal. However, we apply a 10% discount to the outcome of our second scenario, implying a EUR2.70 TP on the basis of above-average risks in terms of execution and pending litigation.
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Total Produce Buy TP EUR 2.70
Although the Total Produce management team’s past at Fyffes brings experience with a tropical fruits business, it is obvious that backward integration entails risks (e.g. natural disasters in regions where sourcing activities are concentrated). Furthermore, despite Total Produce’s historical success with JV structures, the dependency on external managers is a risk, especially if one takes into account that the size of the third tranche is likely already set (at USD450m). In addition, we think This report is intended for [email protected]. Unauthorized redistribution of this prohibited it probable that the finalisation of the deal was hasty, given Greenyard’s interest in the asset. This implies a risk that things were overlooked in the due diligence process. Lastly, Dole has had litigation issues in recent years and is still subject to several pending cases. Despite having litigation accruals in place (est. USD37m as of December 2017), actual litigation settlements could differ materially from these accruals.
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Total Produce Buy TP EUR 2.70
Investment conclusion We upgrade Total Produce from Hold to Buy (raising our TP from EUR2.25 to EUR2.70), as we see significant potential for shareholder value accretion embedded in the Dole deal. Considering that we expect Total Produce’s involvement to boost Dole’s operational performance and cash flow generation, This report is intended for [email protected]. Unauthorized redistribution of this prohibited particularly when Total Produce’s management gains control, the tranches come at attractive multiples (7.9x EV/EBITDA for the first tranche, 5.3x EV/EBITDA for the second tranche, and a 6.5x 2020E multiple for the third tranche).
Clear strategic rationale We believe there is a clear strategic rationale for getting a foot in the door at Dole, as it will allow Total Produce to diversify its activities into higher-growth regions (North America makes up 61% of Dole’s sales vs. 25% for Total Produce) and categories (tropical fruit, c. 50% of Dole’s portfolio). Furthermore, it provides Total Produce with a way into the most iconic fresh produce brand worldwide. Clear drivers to add value at Dole Total Produce sees opportunity in a number of areas that should drive Dole’s value: revenue synergies, cost savings, capex management, the selling off of non-core assets, improvements in working capital management and other cash contributory factors. Revenue synergies Dole’s relationships with retailers like Walmart, Kroger and BAMA may help Total Produce gain access to large players across North America, particularly in produce categories where Dole has no presence. In that regard, it is clearly helpful that the level of overlap between the companies is very low. Conversely, there is the opportunity to channel the Dole brand through Total Produce’s distribution network. Cost savings potential Helped by experience gained from Fyfes, Total Produce has indicated that it sees an opportunity to reduce costs in the Dole supply chain by USD15-20m in the short- term. Shipping arrangements will likely be one of its priorities. A comparison of Selling, General and Administrative cost/sales ratios at Total Produce (1.6%) and Dole (4.3%) may indicate upside in terms of managing operating expenses. In the medium-term, after gaining control of Dole, there is likely to be an opportunity to generate an additional USD15-20m in annual synergies, according to Total Produce’s management. Improving cash conversion We believe Dole’s capex can be significantly reduced in the next three years (we model USD80m in 2018-20E, i.e. c. 1.75% sales) versus USD185m on average over 2014-16. Together with the sale of non-core assets (est. PV of c. USD170m) and minor improvements in working capital, this should improve Dole’s cash generation and reduce Dole’s significant debt (4.4x ND/credit agreement adjusted EBITDA) in coming years.
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Total Produce Buy TP EUR 2.70
Sound financial returns We estimate that the Dole deal could add c. 30-35% to the group’s DCF value if Total Produce executes its rights to acquire the second and third tranches in time. However, we choose to apply a 10% discount to the outcome of our second DCF scenario, implying a EUR2.75 TP on the basis of above-average risks in terms of execution and pending litigation. This report is intended for [email protected]. Unauthorized redistribution of this prohibited Actual EV/EBITDA multiple est. at c. 7.7x At first glance, the transaction multiple of the Dole deal may be considered high, at c. 8.9x EV/EBITDA, in comparison to Total Produce’s historical M&A activity. However, a look at deal multiples in comparable transactions confirms the validity of higher EV/EBITDA multiples. Another important factor is the use of the 2016 adj. EBITDA (USD216m) in the 8.9x multiple. Dole’s Q3 statement indicates a significant improvement in operating performance. Using our estimates for 2017E, one would arrive at a significantly lower deal multiple, namely c. 7.7x EV/EBITDA. We see this as attractive for a business that we expect to show 2-4% organic growth levels, and USD15-20m short-term cost savings potential (c. 6-8% 2017E EBITDA). Discount of 10% to probable scenario outcome brings us EUR2.70 TP We believe Total Produce will own 100% of Dole in five years’ time if disastrous negative surprises do not materialise. A combination of Total Produce’s stand-alone DCF value and a Dole DCF analysis in mentioned scenario brings us to a fair value of EUR3. We make an important assumption, the improvement of operating performance at Dole in terms of Capex management, cost savings/synergies and working capital; particularly the latter two when Total Produce gains control. Based on our estimates, the tranches come at attractive multiples, namely 7.9x 2017 EV/EBITDA for the first tranche, 5.3x 2018E EV/EBITDA for the second, and 6.5x 2020E EV/EBITDA for the third. Although we are clear believers in upside potential with the deal, we acknowledge uncertainty in terms of the timing of a lot of the cash flows described in the above scenario. In addition, we feel comfortable with a 10% discount to the scenario outcome on the basis of above-average risks in terms of execution and pending litigation.
29 keplercheuvreux.com
Total Produce Buy TP EUR 2.70
Valuation
FY to 31/12 (EUR) 2012 2013 2014 2015 2016 2017 2018E 2019E
Per share data (EUR) EPS adjusted 0.08 0.09 0.10 0.11 0.12 0.14 0.11 0.15 % Change 14.2% 14.8% 5.9% 10.6% 14.1% 11.2% -15.8% 33.4% This report is intended for [email protected]. Unauthorized redistribution of this prohibited EPS adjusted and fully diluted 0.08 0.09 0.10 0.11 0.12 0.13 0.11 0.15 % Change 14.2% 14.7% 5.4% 10.0% 14.0% 11.7% -15.7% 32.9% EPS reported 0.06 0.09 0.09 0.09 0.09 0.15 0.09 0.13 % Change -6.1% 47.2% -4.8% 0.7% -1.7% 66.0% -38.5% 42.3% EPS Consensus 0.13 0.14 Cash flow per share 0.15 0.18 0.14 0.20 0.14 0.15 0.16 0.17 Book value per share 0.57 0.66 0.66 0.72 0.71 0.80 1.10 1.20 DPS 0.02 0.02 0.02 0.03 0.03 0.03 0.03 0.04 Number of shares, YE (m) 329.9 329.9 330.7 331.0 320.1 323.2 387.8 387.8 Number of shares, fully diluted, YE (m) 329.9 330.3 332.5 334.9 324.1 325.8 390.4 391.9
Share price Latest price / year end 0.6 0.8 1.1 1.5 2.0 2.6 2.4 2.4 52 week high (Year high) 0.6 0.9 1.2 1.5 2.0 2.6 2.5 52 week low (Year low) 0.4 0.6 0.8 1.0 1.4 1.8 2.3 Average price (Year) 0.4 0.7 1.0 1.2 1.6 2.1 2.4
Enterprise value (EURm) Market capitalisation 147.7 234.7 333.5 401.3 505.6 688.1 911.4 911.4 Net financial debt 53.0 11.0 16.8 18.1 48.4 113.1 194.6 188.8 Pension provisions 28.3 7.9 27.5 17.2 37.8 22.0 20.5 19.0 Market value of minorities 102.7 105.3 97.2 108.4 156.1 205.2 205.2 205.2 Market value of equity affiliates (net of tax) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Others 78.4 81.1 86.0 100.0 116.9 105.0 97.0 81.0 Enterprise value 410.2 440.1 561.1 644.9 864.8 1,133.4 1,428.7 1,405.4
Valuation P/E adjusted 5.6 7.8 10.4 11.3 12.9 15.7 20.5 15.4 P/E adjusted and fully diluted 5.6 7.8 10.5 11.5 13.1 15.8 20.7 15.6 P/E consensus 17.5 16.8
P/BV 0.8 1.1 1.5 1.7 2.2 2.6 2.1 2.0 P/CF 3.0 4.0 7.0 6.0 11.1 14.6 14.9 13.7 Dividend yield (%) 4.3% 3.0% 2.3% 2.1% 1.8% 1.5% 1.4% 1.5% Dividend yield preference shares (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% FCF yield (%) 25.3% 18.7% 10.6% 11.0% 4.5% 0.8% 4.0% 5.1%
ROE (%) 14.4% 14.9% 14.7% 15.5% 16.8% 18.1% 12.9% 13.3% ROIC (%) 9.8% 10.1% 10.5% 9.9% 10.2% 10.3% 8.1% 8.5%
EV/Sales 0.17 0.17 0.21 0.22 0.28 0.31 0.38 0.37 EV/EBITDA 5.8 6.3 7.6 7.8 9.1 10.9 9.1 6.2 EV/EBIT 8.3 8.2 10.5 11.6 13.3 14.1 17.5 13.9 EV/NOPAT 10.4 10.9 13.3 15.0 17.4 19.0 23.3 18.6 EV/IC 1.0 1.1 1.4 1.4 1.7 1.8 1.6 1.6 ROIC/WACC 1.3 1.3 1.4 1.3 1.4 1.4 1.1 1.1 EV/IC over ROIC/WACC 0.8 0.8 1.0 1.1 1.2 1.3 1.5 1.4
30 keplercheuvreux.com
Total Produce Buy TP EUR 2.70
Income statement
FY to 31/12 (EURm) 2012 2013 2014 2015 2016 2017 2018E 2019E
Sales 2,432.0 2,638.0 2,667.0 2,875.4 3,105.5 3,674.0 3,736.9 3,833.6 Gross profit 339.0 363.0 365.0 396.3 432.9 491.8 513.8 531.0 EBITDA reported 58.2 61.5 60.6 61.2 70.4 83.7 82.6 84.5 This report is intended for [email protected]. Unauthorized redistribution of this prohibited EBITDA adjusted 70.4 69.5 74.1 82.9 94.9 104.4 157.2 227.4 Depreciation and amortisation -20.1 -19.5 -19.8 -20.7 -25.1 -26.3 -27.7 -27.9 Goodwill impairment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other financial result and associates 4.6 5.3 6.8 10.1 12.3 12.2 16.3 33.7 EBIT reported 42.7 47.2 47.5 50.6 57.6 69.6 71.2 90.3 EBIT adjusted 49.4 53.6 53.5 55.8 65.2 80.1 81.7 100.8 Net financial items -6.4 -5.2 -5.1 -5.8 -5.5 -5.8 -9.2 -8.7 Associates 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Others 0.3 6.2 2.3 1.7 -2.1 7.3 0.0 0.0 Earnings before tax 36.7 48.2 44.7 46.4 49.9 71.1 62.0 81.6 Tax -8.4 -9.7 -8.2 -8.9 -10.6 -9.6 -13.0 -17.1 Net profit from continuing operations 28.3 38.5 36.5 37.5 39.3 61.5 49.0 64.5 Net profit from discontinuing activities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net profit before minorities 28.3 38.5 36.5 37.5 39.3 61.5 49.0 64.5 Minorities -7.1 -7.3 -6.7 -7.5 -10.8 -13.7 -13.7 -14.3 Net profit reported 21.2 31.2 29.8 30.0 28.5 47.8 35.3 50.2 Adjustments 5.1 -1.1 2.2 5.4 10.6 -3.9 9.1 9.0 Net profit adjusted 26.3 30.2 32.0 35.4 39.1 43.9 44.4 59.2
Sales % Change 6.5% 8.5% 1.1% 7.8% 8.0% 18.3% 1.7% 2.6% EBITDA reported % Change 13.9% 5.6% -1.4% 0.9% 15.1% 18.9% -1.3% 2.4% EBITDA adjusted % Change 17.9% -1.3% 6.6% 11.9% 14.4% 10.0% 50.6% 44.7% EBIT reported % Change 18.9% 10.5% 0.7% 6.4% 13.8% 21.0% 2.3% 26.8% EBIT adjusted % Change 19.3% 8.3% -0.1% 4.2% 17.0% 22.8% 2.0% 23.4% Earnings before tax % Change 7.3% 31.5% -7.2% 3.8% 7.6% 42.4% -12.9% 31.8% Net profit from continuing operations % Change 5.3% 36.0% -5.2% 2.8% 4.8% 56.5% -20.4% 31.8% Net profit reported % Change -6.1% 47.2% -4.6% 0.8% -5.0% 67.6% -26.2% 42.3% Net profit adjusted % Change 14.2% 14.8% 6.1% 10.7% 10.4% 12.3% 1.1% 33.4%
Gross profit margin (%) 13.9% 13.8% 13.7% 13.8% 13.9% 13.4% 13.8% 13.9% EBITDA margin (%) 2.9% 2.6% 2.8% 2.9% 3.1% 2.8% 4.2% 5.9% EBIT margin (%) 2.0% 2.0% 2.0% 1.9% 2.1% 2.2% 2.2% 2.6% Net profit margin (%) 1.1% 1.1% 1.2% 1.2% 1.3% 1.2% 1.2% 1.5% Tax rate (%) -20.2% -24.6% -21.3% -22.8% -23.6% -25.6% -25.0% -25.0% Payout ratio (%) 24.1% 23.2% 23.9% 23.7% 23.5% 23.1% 29.6% 23.4%
EPS reported (EUR) 0.06 0.09 0.09 0.09 0.09 0.15 0.09 0.13 EPS adjusted (EUR) 0.08 0.09 0.10 0.11 0.12 0.14 0.11 0.15 EPS adj and fully diluted (EUR) 0.08 0.09 0.10 0.11 0.12 0.13 0.11 0.15 DPS (EUR) 0.02 0.02 0.02 0.03 0.03 0.03 0.03 0.04 DPS,preference shares (EUR) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
EPS reported % Change -6.1% 47.2% -4.8% 0.7% -1.7% 66.0% -38.5% 42.3% EPS adjusted % Change 14.2% 14.8% 5.9% 10.6% 14.1% 11.2% -15.8% 33.4% EPS adj and fully diluted % Change 14.2% 14.7% 5.4% 10.0% 14.0% 11.7% -15.7% 32.9% DPS % Change 7.5% 10.7% 8.5% 8.8% 13.1% 10.0% 8.0% 5.0%
Consensus Sales (EURm) 3,901.0 3,979.4 Consensus EBITDA (EURm) 88.0 89.7 Consensus EBIT (EURm) 71.5 73.1 Consensus EPS (EUR) 0.13 0.14 Consensus DPS (EUR) 0.03 0.04
31 keplercheuvreux.com
Total Produce Buy TP EUR 2.70
Cash flow statement
FY to 31/12 (EURm) 2012 2013 2014 2015 2016 2017 2018E 2019E
Net profit before minorities 28.3 38.5 36.5 37.5 39.3 61.5 49.0 64.5 Depreciation and amortisation 20.1 19.5 19.8 20.7 25.1 26.3 27.7 27.9 Goodwill impairment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 This report is intended for [email protected]. Unauthorized redistribution of this prohibited Change in working capital 12.1 14.4 11.7 15.0 -9.5 -2.3 0.8 7.9 Others -11.4 -14.5 -20.5 -6.7 -9.2 -38.3 -16.1 -33.7 Cash Flow from operating activities 49.1 58.0 47.5 66.5 45.6 47.2 61.3 66.6 % Change 142.7% 18.2% -18.1% 40.0% -31.4% 3.3% 30.1% 8.6%
Capex -11.7 -14.1 -12.0 -22.3 -23.1 -41.5 -24.8 -20.1
Free cash flow 37.4 43.9 35.5 44.2 22.5 5.7 36.6 46.6 % Change 589.9% 17.4% -19.1% 24.6% -49.0% -74.9% 545.9% 27.3%
Acquisitions -14.8 -17.6 -32.8 -24.7 -48.2 -77.9 -250.0 -25.8 Divestments 8.5 21.7 0.0 0.0 0.0 -6.7 0.0 0.0 Dividend paid -6.3 -7.0 -7.6 -8.3 -9.1 -10.1 -13.1 -13.7 Share buy back 0.0 0.0 0.0 -14.4 -6.0 0.0 0.0 0.0 Capital increases 0.0 0.0 0.0 0.0 0.0 2.6 145.0 0.0 Others -2.2 1.1 -1.0 2.0 10.4 21.6 0.0 -1.3
Change in net financial debt 22.5 42.0 -5.9 -1.2 -30.3 -64.8 -81.5 5.8 Change in cash and cash equivalents 19.4 -1.3 7.6 16.4 -2.5 -29.5 15.5 5.8
Attributable FCF 37.4 43.9 35.5 44.2 22.5 5.7 36.6 46.6
Cash flow per share (EUR) 0.15 0.18 0.14 0.20 0.14 0.15 0.16 0.17 % Change 142.7% 18.2% -18.3% 39.9% -29.0% 2.4% 8.4% 8.6%
FCF per share (EUR) 0.11 0.13 0.11 0.13 0.07 0.02 0.09 0.12 % Change 589.9% 17.4% -19.3% 24.4% -47.3% -75.1% 438.2% 27.3%
Capex / Sales (%) 0.5% 0.5% 0.4% 0.8% 0.7% 1.1% 0.7% 0.5% Capex / D&A (%) 58.2% 72.2% 60.5% 107.7% 92.0% 158.0% 89.5% 71.8%
Cash flow / Sales (%) 2.0% 2.2% 1.8% 2.3% 1.5% 1.3% 1.6% 1.7% FCF / Sales (%) 1.5% 1.7% 1.3% 1.5% 0.7% 0.2% 1.0% 1.2%
FCF Yield (%) 25.3% 18.7% 10.6% 11.0% 4.5% 0.8% 4.0% 5.1% Unlevered FCF Yield (%) 11.5% 12.0% 7.8% 8.2% 3.6% 1.4% 3.5% 4.3%
32 keplercheuvreux.com
Total Produce Buy TP EUR 2.70
Balance sheet
FY to 31/12 (EURm) 2012 2013 2014 2015 2016 2017 2018E 2019E
Cash and cash equivalents 109.5 108.2 115.8 132.2 129.8 100.2 115.8 121.5 Inventories 45.6 48.1 49.5 63.4 61.2 89.7 87.8 88.2 Accounts receivable 279.3 279.1 282.9 279.2 317.5 365.3 373.7 383.4 This report is intended for [email protected]. Unauthorized redistribution of this prohibited Other current assets 2.0 0.2 2.2 4.1 1.9 9.0 8.9 8.9 Current assets 436.3 435.7 450.4 479.0 510.4 564.2 586.2 602.0
Tangible assets 138.8 133.9 137.9 142.0 145.2 167.4 172.2 172.6 Goodwill 129.6 133.7 135.9 149.2 166.9 201.6 201.6 201.6 Other Intangible assets 22.5 23.9 26.7 41.3 53.6 79.4 70.0 60.1 Financial assets 0.6 0.6 0.7 0.7 0.6 0.7 0.7 0.7 Other non-current assets 89.1 77.1 83.3 100.7 124.7 138.4 388.4 423.3 Non-current assets 380.6 369.3 384.5 433.9 491.0 587.6 833.0 858.4
Short term debt 7.7 4.9 17.8 18.4 48.0 47.7 47.7 47.7 Accounts payable 326.8 340.4 343.0 369.5 389.7 463.6 470.9 488.8 Other short term liabilities 4.5 10.0 12.0 6.9 12.6 11.5 11.5 11.5 Current liabilities 339.1 355.3 372.8 394.7 450.3 522.9 530.1 548.1
Long term debt 154.8 114.3 114.9 131.9 130.2 165.6 262.6 262.6 Pension provisions 28.3 7.9 27.5 17.2 37.8 22.0 20.5 19.0 Other long term provisions 15.3 17.5 12.1 28.4 36.7 26.1 18.1 2.1 Other long term liabilities 27.4 24.1 22.2 26.9 47.5 75.6 75.6 74.4 Non-current liabilities 225.9 163.8 176.7 204.3 252.2 289.4 376.9 358.1
Shareholders' equity 187.8 217.4 217.0 238.8 226.3 259.8 427.5 464.5 Minority interests 64.2 68.5 68.3 75.0 72.6 79.8 84.6 89.7 Total equity 252.0 285.9 285.4 313.8 298.9 339.6 512.1 554.2
Balance sheet total 816.9 805.0 834.9 912.9 1,001.4 1,151.8 1,419.2 1,460.3 % Change 7.3% -1.5% 3.7% 9.3% 9.7% 15.0% 23.2% 2.9%
Book value per share (EUR) 0.57 0.66 0.66 0.72 0.71 0.80 1.10 1.20 % Change 6.3% 15.7% -0.4% 9.9% -2.0% 13.7% 37.1% 8.6%
Net debt 110.5 50.6 76.4 75.7 129.1 180.1 260.1 252.8 Net financial debt 53.0 11.0 16.8 18.1 48.4 113.1 194.6 188.8 Trade working capital -2.0 -13.2 -10.7 -26.8 -11.0 -8.6 -9.3 -17.3 Working capital -4.5 -22.9 -20.4 -29.6 -21.8 -11.2 -12.0 -19.9 Inventories/sales 1.9% 1.8% 1.9% 2.2% 2.0% 2.4% 2.4% 2.3% Invested capital 416.1 387.8 415.4 455.6 523.2 631.4 876.0 893.5
Net fin. debt / EBITDA (x) 0.8 0.2 0.2 0.2 0.5 1.1 1.2 0.8 Net fin. debt / FCF (x) 1.4 0.3 0.5 0.4 2.1 20.0 5.3 4.1
Gearing (%) 21.0% 3.8% 5.9% 5.8% 16.2% 33.3% 38.0% 34.1% Goodwill / Equity (%) 51.4% 46.8% 47.6% 47.6% 55.8% 59.4% 39.4% 36.4%
33 keplercheuvreux.com
Total Produce Buy TP EUR 2.70
Research ratings and important disclosures The term "KEPLER CHEUVREUX" shall, unless the context otherwise requires, mean each of KEPLER CHEUVREUX and its affiliates, subsidiaries and related companies (see “Regulators” table below). The investment recommendation(s) referred to in this report was (were) completed on 02/03/2018 17:57 (GMT) and was first disseminated on 05/03/2018 6:12 (GMT). Prices in this report are taken as of the previous day’s close (to the date of this report) on the home market unless otherwise stated.
Companies mentioned This report is intended for [email protected]. Unauthorized redistribution of this prohibited Stock ISIN Currency Price Total Produce IE00B1HDWM43 EUR 2.35
Source: Factset closing prices of 01/03/2018 Disclosure checklist - Potential conflict of interests Company Name Disclosure Total Produce Kepler Cheuvreux and Rabobank (Coöperatieve Rabobank U.A.) have entered into a Co-operation Agreement to form a strategic alliance in connection with certain services including services connected to investment banking transactions. Rabobank provides investment banking services to this issuer in return for which Rabobank will receive a consideration or a promise of consideration. Separately& through a Co-operation Agreement between with Kepler Cheuvreux and Rabobank& Kepler Cheuvreux provides services in connection with such activities. Kepler Cheuvreux also receives a consideration or a promise of a consideration in accordance with the general terms of the Co-operation Agreement Rabobank (Coöperatieve Rabobank U.A.) holds or owns or controls 5% or more of the issued share capital of Kepler Cheuvreux. Rabobank provides investment banking services to this issuer in return for which Rabobank has received a consideration or a promise of consideration A representative of Rabobank (Coöperatieve Rabobank U.A.) serves on the board of directors of Kepler Cheuvreux
Organizational and administrative arrangements to avoid and prevent conflicts of interests KEPLER CHEUVREUX promotes and disseminates independent investment research and have implemented written procedures designed to identify and manage potential conflicts of interest that arise in connection with its research business, which are available upon request. The KEPLER CHEUVREUX research analysts and other staff involved in issuing and disseminating research reports operate independently of KEPLER CHEUVREUX Investment Banking business. Information barriers and procedures are in place between the research analysts and staff involved in securities trading for the account of KEPLER CHEUVREUX or clients to ensure that price sensitive information is handled according to applicable laws and regulations. It is Kepler Cheuvreux’ policy not to disclose the rating to the issuer before publication and dissemination. Nevertheless, this document, in whole or in part, and with the exclusion of ratings, target prices and any other information that could lead to determine its valuation, may have been provided to the issuer prior to publication and dissemination, solely with the aim of verifying factual accuracy. Please refer to www.keplercheuvreux.com for further information relating to research and conflict of interest management. Analyst disclosures The functional job title of the person(s) responsible for the recommendations contained in this report is Equity/Credit Research Analyst unless otherwise stated on the cover. Name of the Research Analyst(s): Anton Brink Regulation AC - Analyst Certification: Each Equity/Credit Research Analyst(s) listed on the front-page of this report, principally responsible for the preparation and content of all or any identified portion of this research report hereby certifies that, with respect to each issuer or security or any identified portion of the report with respect to an issuer or security that the equity research analyst covers in this research report, all of the views expressed in this research report accurately reflect their personal views about those issuer(s) or securities. Each Equity/Credit Research Analyst(s) also certifies that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or view(s) expressed by that equity research analyst in this research report. Each Equity/Credit Research Analyst certifies that he is acting independently and impartially from KEPLER CHEUVREUX shareholders, directors and is not affected by any current or potential conflict of interest that may arise from any KEPLER CHEUVREUX activities. Analyst Compensation: The research analyst(s) primarily responsible for the preparation of the content of the research report attest that no part of the analyst’s(s’) compensation was, is or will be, directly or indirectly, related to the specific recommendations expressed by the research analyst(s) in the research report. The research analyst’s(s’) compensation is, however, determined by the overall economic performance of KEPLER CHEUVREUX. Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of KEPLER CHEUVREUX, which is a non- US affiliate and parent company of Kepler Capital Markets, Inc. a SEC registered and FINRA member broker-dealer. Equity/Credit Research Analysts employed by KEPLER CHEUVREUX, are not registered/qualified as research analysts under FINRA/NYSE rules, may not be associated persons of Kepler Capital Markets, Inc. and may not be subject to NASD Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account. Rating ratio Kepler Cheuvreux Q4 2017 Rating Breakdown A B Buy 46% 42% Hold 35% 37% Reduce 17% 13% Not Rated/Under Review/Accept Offer 2% 8% Total 100% 100%
Source: Kepler Cheuvreux A: % of all research recommendations B: % of issuers to which material services of investment firms are supplied 12 months rating history The below table shows the history of recommendations and target prices changes issued by KEPLER CHEUVREUX research department (Equity and Credit) over a 12 months period. Company Name Date Business Line Rating Target Price Closing Price Total Produce (EUR) 24/10/2017 06:10 Equity Research Hold 2.25 2.32 01/02/2018 10:51 Equity Research Not Rated 2.35
Credit research does not issue target prices. Left intentionally blank. Please refer to the following link https://research.keplercheuvreux.com/app/disclosure for a full list of investment recommendations issued over the last 12 months by the author(s) and contributor(s) of this report on any financial instruments.
34 keplercheuvreux.com
Total Produce Buy TP EUR 2.70
Equity research Rating system KEPLER CHEUVREUX equity research ratings and target prices are issued in absolute terms, not relative to any given benchmark. A rating on a stock is set after assessing the twelve months expected upside or downside of the stock derived from the analyst’s fair value (target price) and in the light of the risk profile of the company. Ratings are defined as follows: Buy: The minimum expected upside is 10% over next 12 months (the minimum required upside could be higher in light of the company’s risk profile). Hold: The expected upside is below 10% (the expected upside could be higher in light of the company’s risk profile). Reduce: There is an expected downside. This report is intended for [email protected]. Unauthorized redistribution of this prohibited Accept offer: In the context of a total or partial take-over bid, squeeze-out or similar share purchase proposals, the offer price is considered to be fairly valuing the shares. Reject offer: In the context of a total or partial take-over bid, squeeze-out or similar share purchase proposals, the offered price is considered to be undervaluing the shares. Under review: An event occurred with an expected significant impact on our target price and we cannot issue a recommendation before having processed that new information and/or without a new share price reference. Not rated: The stock is not covered. Restricted: A recommendation, target price and/or financial forecast is not disclosed further to compliance and/or other regulatory considerations. Due to share prices volatility, ratings and target prices may occasionally and temporarily be inconsistent with the above definition. Valuation methodology and risks Unless otherwise stated in this report, target prices and investment recommendations are determined based on fundamental research methodologies and relies on commonly used valuation methodologies such as Discounted Cash Flow (DCF), valuation multiples comparison with history and peers, Dividend Discount Model (DDM). Valuation methodologies and models can be highly dependent on macroeconomic factors (such as the price of commodities, exchange rates and interest rates) as well as other external factors including taxation, regulation and geopolitical changes (such as tax policy changes, strikes or war). In addition, investors’ confidence and market sentiment can affect the valuation of companies. The valuation is also based on expectations that might change rapidly and without notice, depending on developments specific to individual industries. Whichever valuation method is used there is a significant risk that the target price will not be achieved within the expected timeframe. Unless otherwise stated, models used are proprietary. Additional information about the proprietary models used in this report is accessible on request. Kepler Cheuvreux’ equity research policy is to update research rating when it deems appropriate in the light of new findings, markets development and any relevant information that can impact the analyst’s view and opinion. Credit research Recommendation system (issuer or instrument level) Buy: The analyst has a positive conviction either in absolute or relative valuation terms and/or expects a tightening of the issuer’s debt securities spread over a 6 months period. Hold: The analyst has a stable credit fundamental opinion on the issuer and/or performances of the debt securities over a 6 months period. Sell: The analyst expects of a widening of the credit spread to some or all debt securities of the issuer and/or a negative fundamental view over a 6 months period. No recommendation: The analyst does not provide formal, continuous coverage of this issuer and has not assigned a recommendation to the issuer. Restricted: A recommendation, target price and/or financial forecast is not disclosed further to compliance and/or other regulatory considerations. Recommendations on interest bearing securities mostly focus on the credit spread and on the rating views and methodologies of recognized agencies (S&P, Moody’s and Fitch). Ratings and recommendations may differ for a single issuer according the maturity profile, subordination or market valuation of interest bearing securities. Valuation methodology and risks Unless otherwise stated in this report, recommendations produced on companies covered by KEPLER CHEUVREUX credit research, rely on fundamental analysis combined with a market approach of the interest bearing securities valuations. The methodology employed to assign recommendations is based on the analyst fundamental evaluation of the groups' operating and financial profiles adjusted by credit specific elements. Valuation methodologies and models can be highly dependent on macroeconomic factors (such as the price of commodities, exchange rates and interest rates) as well as other external factors including taxation, regulation and geopolitical changes (such as tax policy changes, strikes or war) and also on methodologies’ changes of recognized agencies. In addition, investors’ confidence and market sentiment can affect the valuation of companies. The valuation is also based on expectations that might change rapidly and without notice, depending on developments specific to individual industries. Unless otherwise stated, models used are proprietary. If nothing is indicated to the contrary, all figures are unaudited. Additional information about the proprietary models used in this report is accessible on request. Kepler Cheuvreux’ credit research policy is to update research rating when it deems appropriate in the light of new findings, markets development and any relevant information that can impact the analyst’s view and opinion. Regulators Location Regulator Abbreviation KEPLER CHEUVREUX S.A - France Autorité des Marchés Financiers AMF KEPLER CHEUVREUX, Sucursal en España Comisión Nacional del Mercado de Valores CNMV KEPLER CHEUVREUX, Frankfurt branch Bundesanstalt für Finanzdienstleistungsaufsicht BaFin KEPLER CHEUVREUX, Milan branch Commissione Nazionale per le Società e la Borsa CONSOB KEPLER CHEUVREUX, Amsterdam branch Autoriteit Financiële Markten AFM Kepler Capital Markets SA - Switzerland, Zurich branch Swiss Financial Market Supervisory Authority FINMA Kepler Capital Markets, Inc. Financial Industry Regulatory Authority FINRA KEPLER CHEUVREUX, London branch Financial Conduct Authority FCA KEPLER CHEUVREUX, Vienna branch Austrian Financial Services Authority FMA KEPLER CHEUVREUX, Stockholm Branch Finansinspektionen FI KEPLER CHEUVREUX Oslo Branch Finanstilsysnet NFSA KEPLER CHEUVREUX is authorised and regulated by both Autorité de Contrôle Prudentiel and Autorité des Marchés Financiers.
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non-U.S. companies may not be as liquid as securities of comparable U.S. companies. Securities discussed herein may be rated below investment grade and should therefore only be considered for inclusion in accounts qualified for speculative investment. Analysts employed by KEPLER CHEUVREUX SA, a non-U.S. broker-dealer, are not required to take the FINRA analyst exam. The information contained in this report is intended solely for certain "major U.S. institutional investors" and may not be used or relied upon by any other person for any purpose. Such information is provided for informational purposes only and does not constitute a solicitation to buy or an offer to sell any securities under the Securities Act of 1933, as amended, or under any other U.S. federal or state securities laws, rules or regulations. 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Factors that could cause a company's actual results and financial condition to differ from expectations include, without limitation: political uncertainty, changes in general economic conditions that adversely affect the level of demand for the company's products or services, changes in foreign exchange markets, changes in international and domestic financial markets and in the competitive environment, and other factors relating to the foregoing. All forward-looking statements contained in this report are qualified in their entirety by this cautionary statement. France: This publication is issued and distributed in accordance with Articles L.544-1 and seq and R. 621-30-1 of the Code Monétaire et Financier and with Articles 313-25 to 313-27 and 315-1 and seq of the General Regulation of the Autorité des Marchés Financiers (AMF). 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Equity Research Local insight, European scale
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Food research team
Anton Brink Main author Baptiste de Leudeville Karel Zoete [email protected] [email protected] [email protected] +31 20 563 23 61 +33 1 53 65 36 55 +31 20 563 2370
Anton Brink is an Equity Research Analyst who is specialised in Food & Agricultural companies. He joined Christian Nordby Pablo De Renteria [email protected] [email protected] Kepler Cheuvreux in November 2016 +47 23 13 90 71 +34 914 36 5221 and prior to this he worked for UBS. Anton Brink has a dual Bachelor’s degree in Economics and Law, and a Master’s degree in Financial Markets & Daniele Ridolfi Patrick Roquas Regulation, obtained through the [email protected] [email protected] +39 02 8550 7219 +31 20 563 2366 Duisenberg Honours programme.
Hans-Marius Ludvigsen Richard Withagen [email protected] [email protected] +47 23 13 90 66 +31 20 563 2368
Jon Cox Head of European Consumer [email protected] +41 43 333 6607
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