Ebro Foods: Costs hurting EBITDA
After 1H18 results we downgrade Ebro Foods from Buy to Neutral. Although the shares are outperforming the Ibex YTD (+2%, vs. -1% for Ibex), the operational performance has seen an important deterioration in 2018 driven by higher raw material costs, logistic costs and industrial costs related to the organic capex and also staff costs in the US. Finally the USD devaluation also had a negative impact, affecting 1H18 EBITDA by 5% YoY. We lower our FV from Eur24.3/sh to Eur19.5 on the back of lower estimates and adjusting for the dividends paid to date in 2018. We think Ebro will recover profitability levels of 2017 in 2019E but our previous growth assumptions were probably too upbeat. Our CAGR of EBITDA 2017-2023E is now 3% (vs. 8% before), which is in line with the growth recorded in the 2010-2017 period. With the shares trading at 10.7x EV/EBITDA and P/E 18.5x both for 18E we don’t see room for a rerating as the discount to peers is lower than in the past, EBITDA will likely be dropping in 2018E and consensus still seems high.Ebro Puleva is a food manufacturing group based in Spain. Co. is engaged in the manufacture and marketing, export and import of sugar, rice, dairy products, and products destined for agriculture development and human and animal consumption. Co.'s brand names include: Panzani®, Ronzoni®, American Beauty®, Skinner®, Lancia®, Catelli®, Healthy Harvest®, etc. in pastas and sauces, Mahatma®, Sucess®, Carolina®, Lustucru®, Taureau Aile®, Oryza®, Bosto®, Reis-Fit®, Riceland®, Danrice®, Risella®, Brillante®, Nomen®, La Cigala® and La Fallera® in the rice sector, Puleva®, Ram® and El Castillo® in the dairy sector, and Azucarera® and Sucran® in the sugar sector.
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