Equity Analysis /
Sri Lanka

Ceylon Cold Stores: CEYLON COLD STORES: Initiation – growth driven by capacity and penetration

    Tellimer Research
    17 August 2017
    Published byTellimer Research
    We initiate coverage with a BUY rating and 19% ETR. Ceylon Cold Stores (CCS) is a mix of branded consumer foods (soft drinks and frozen desserts, 67% of FY17 EBIT) and supermarket retail (33%). In our view, CCS’s current share price does not sufficiently reflect the growth driven by capacity expansion and penetration gains. Our target price of LKR885 is based on a DCF with a WACC of 14.5%, terminal free cash flow growth of 8% and the following FY24f assumptions: soft drinks market of 450m ltrs (248m ltrs in FY17), soft drinks share of 40% (38% in FY17), frozen dessert market of 70m ltrs, (44m ltrs in FY17), frozen dessert share of 59% (56% in FY17), retail footprint of 209 stores (66 in FY17) and group EBITDA margin of 15.5% (12.7% in FY17). Our TP implies FY18f EV/EBITDA and P/E multiples of 12.2x and 22.0x versus peer averages of 19.0x and 32.7x.