Centrale del Latte Di Italia SpA (MI:CLII) price increases – which were successfully implemented during H1 – continue to drive the recovery. Underlying sales growth excluding M&A was an impressive 14% during Q317, and EBITDA margin more than doubled from 2.0% in Q316 to 5.4% in Q317. Revenue synergies continue to feature following the acquisition of CLF, as cross-selling of products across the CLI platform continues to contribute to growth. In October CLI announced that it had signed an agreement with Alibaba (NYSE:BABA) to sell its UHT milk online to Chinese consumers. While we have cut our near-term estimates to reflect recent increases in raw material costs, we raise our medium-term revenue growth by 100bp to capture the potential growth opportunity in China. Our fair value rises to €3.25/share (from €2.94 previously).
Price increases continue to drive the top line
Price increases were implemented on 1 April to offset some cost inflation and were fully rolled out on 1 June. Q3 is therefore the first full quarter to benefit from the increased pricing, and indeed this has come through in the results. Organic sales growth accelerated from 4.8% in H1 to 6.0% in the nine-month period, and EBITDA margin improved sequentially from 2.7% in H1 to 3.6% in the nine-month period. We now forecast an EBITDA margin of 4.6% for FY17 (previously 4.8%), as raw milk prices have started to rise again over the past few weeks.
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