“The main proposition of our recommendation is the turnaround of profit in the absence of non-recurring expenses and better operational performance,” they add.
While the Del Monte’s 4Q17 revenue and core profit was largely in line with expectations, headwinds faced by its US subsidiary and higher planned investments behind innovation and current core operations have led the analysts to cut their FY18 and FY19F earnings estimates for the group by 38% and 43% respectively.
(See: Del Monte Pacific reports 57% fall in FY17 earnings to US$24.4 mil)
The group recently announced that it had entered into several joint ventures (JVs) with another unaffiliated Del Monte branded company, Fresh Del Monte Produce.
Although Yeo and Sim say the move is a “step in the right direction”, they are convinced that the resultant financial impact is limited for now – except for potential savings in litigation costs, now that the two companies have reached a settlement to end their years-long legal tussle over licensing rights and product distribution.
(See: Unaffiliated Del Monte companies announce JVs following litigation settlement)
“[Our new target price of 32 cents] is at a c.20% discount to consumer peers listed in the US and Philippines, given [Del Monte Pacific’s] higher gearing and uncertainty on the pace of its growth, particularly for its US operations,” state the analysts.
As at 9.28am, shares of Del Monte are trading 1.5% lower at 32 cents.
