bellpotter More Positives Emerging ...
?? Debt paydown: funding gap and gearing falls
BPC announced that it will be paying down $1.6bn in debt. We see this is a
positive outcome for the business as it reduces funding cost (debt funded cash
balance) by an estimated $38m. We project gearing in FY05 now will drop to 63%
(FY04E:296%) and interest cover rise to 2.7x (FY04E:1.6x).
?? Brand marketing support maintained
Recent discussions with management have confirmed that brand marketing
expenditure is running at a similar level to last year with no loss in market share
across its major categories. BPC is comfortable that EBITDA growth is being
driven by reduced operating costs and efficiencies rather than a reduction in brand
investment. We are forecasting 12% EBITDA growth in FY05.
?? Commodity cycle looking more and more positive
Recent ABARE forecasts suggest that both wheat and edible oil prices are
expected to fall (by c7% & c9% respectively in FY05). Whilst the timing of these
benefits are difficult to pinpoint, BPC should benefit from this over the next 2
years.
?? Valuation: Buy 2 rating maintained
Our price target remains at $1 (DCF basis), which is in line with median global
branded food EV/EBITDA multiples of 9.2x. In our view, BPC may trade around
85-90c, given acquisition risk. However given management's track record, we
believe any acquisitions are likely to be value accretive. Capital management
options should also not be ruled out.
BPC
burns, philp & company limited
