Del Monte Pacific

Del Monte Pacific (DMP): Announced last October that it is going to acquire Del Monte Food’s consumer business for US$1.675b. Management has secured all debt funding of US$930m, including the ability to take on additional $40m. CLSA believes that the delayed fund raising has caused weakness in share price, with current levels presenting a good entry point, given potential growth from its acquisition. By Feb of 2014, Del Monte Pacific will become one of the few Philippine global players. The acquisition paves the way for DMP to expand in the US through the significant scale and reach of Del Monte Food. Post transaction, the company will be highly geared, though strong cashflows should help mitigate balance sheet risk. DMP is currently trading at a 2014 PE of 16.3x, and a cheaper 11.2x 2015 PE. Although there exists some execution risk, CLSA think current valuations mitigate the execution risk for the company. House reiterate BUY with TP of P33/sh (S$$0.94), implying an upside of 44% (62%). Currently, SGX-listed Del Monte trades at a 9% premium to Phillippine-listed counter.