Thanks to the elimination of the additional duties imposed on Italian milk and dairy products by the previous U.S. presidential administration, the Italian export of these products had a significant boost in the first part of 2021, reported Assolatte, the Italian association of domestic dairy producers. The association also reported that the cancellation of Covid-19 restrictions and the opening of new markets, such as the Chinese market, resulted in increased foreign demand for Italian milk and dairy products.
Thus, it makes sense for investors to consider the investing opportunity provided by Newlat Food S.p.A. (MIL:NWL, Financial), as the Italian agri-food company is a leading producer of popular Italian brands for milk and dairy products. The multi-brand products portfolio of the company includes pasta and baked goods, as well as nutraceuticals and children’s goods. However, most of the core business is in milk and dairy products.
Thanks to the outstanding performance of the dairy products segment, Newlat Food saw total revenues increase nearly 18% year over year to approximately $292.24 million in the first part of 2021.
The acquisition of another Italian milk distribution center called Centrale del latte d'Italia S.p.A. (MIL:CLI, Financial) in April 2020 enabled Newlat Food S.p.A. to limit its losses during the difficult period of 2020. The Ebitda margin rate was 8.8% for the first half of 2021 versus 9.1% for the corresponding period of 2020, offsetting pandemic-induced market headwinds significantly, which could otherwise have produced much heavier consequences.
The financial position of the company also improved as total cash and equivalents was almost $476 million as of June 30, 2021, compared to $224 million as of Dec. 31, 2020. However, the financial exposure doubled to $443 million quarter over quarter, as the company had to raise capital to finance inorganic growth.
The balance sheet is highly leveraged, but the debt exposure looks easily manageable as 23% of it expires within a year, while 19.7% expires after one year and the remaining 57.3% is not due before 2026. The company doesn't seem to have problems in paying interest expenses on the outstanding debt for the time being, and its operations are producing enough cash flow to cover short-term financing needs. The company has an interest coverage ratio of 2.3 and a current ratio of 2.
Looking ahead, the company is waiting for strong tailwinds from the expected consolidation of German and French dairy markets, and relevant synergies from the acquisition in August 2021 of popular brands such as Mug Shot, Twistd, Rochelle, Chicken Tonight and Ragu. Products of these brands increase Newlat’s presence in the United Kingdom, the U.S. and Australia, and position the company very well to benefit from the ongoing improvement of macro-economic conditions in the post-pandemic world.
The stock’s share price was at 6.51 Euros ($7.62) in early trading on Tuesday for a market capitalization of approximately $322.65 million and a 52-week range of $5.51 to $8.31.
The stock doesn’t appear expensive as the share price stands below the 50-Day Moving Average of $7.98 and the 200-Day Moving Average of $7.75. The price-earnings ratio is 7.08, the price-book ratio is 2 and the price-sales ratio is 0.54.
The company doesn’t distribute dividends.
The 14-day relative strength indicator hovers near 30, which means that the share price is not far from oversold levels.
Disclosure: I have no positions in any securities mentioned.
