SAMMONTANA NEW ISSUE

Another Italian company has announced a new issuance: Sammontana issues a €800mm 7NC1 Senior Secured bond B1/B/B+ to repay the bridge loan for the acquisition of FDA Group.

Maybe it's because it's an Italian brand, but I have a certain fondness for it, and after taking a look at the presentation and numbers, I consolidate my good impression... but... there are a few things I like less... spoiler: pricing.

Business Overview

Sammontana, founded in 1948, is a family-owned Italian company known for its production of ice creams and frozen pastry products. It focuses on high-quality "Made in Italy" products, catering to both the HoReCa (hotel, restaurant, and catering) market and large supermarkets (Modern Trade), with more than 2,700 SKUs in its portfolio. The recent acquisition of FDA Group, a company specializing in frozen pastry and products for the HoReCa market, strengthens its position in the Italian market and in some international markets. This merger has created a company with a combined 24% market share in the Italian frozen pastry market.

Sammontana's product range includes:

Sweet Pastry (42% of combined sales): Croissants, muffins, brioches, etc.

Patisserie (19%): Cakes, pies, tiramisu.

Savory Pastry (9%): Pizzas, focaccias, savory snacks.

Ice Cream (29%): Industrial ice creams such as cones, popsicles, and tubs.

Sammontana has proven to be a financially robust company with solid and consistently profitable organic growth. With a CAGR of 9.4% between 2019 and 2023, the company has significantly increased its revenues. The FDA acquisition adds even more momentum, with management projections for revenues to reach €948.3 million in 2023 and adjusted EBITDA of €179.3 million, ensuring EBITDA margins that surpass those of the competition (19% compared to a market average of 13%).

The FDA integration will also lead to substantial cost savings and cross-selling opportunities. The projected cost savings amount to up to €33mm (through joint purchasing, plant and production optimization, etc.), and cross-selling opportunities are estimated at €19mm.

Strategic Focus Areas

Sammontana's main strategy following the FDA integration revolves around three key pillars:

Organic growth and international expansion: While Sammontana has a strong presence in Italy, it is looking to expand into markets such as France, Germany, Austria, Switzerland, and the U.S., leveraging FDA's sales and production network. These markets have shown solid growth in frozen pastry, with a 4% CAGR through 2028. The U.S. is seen as a market with immense potential, especially through Bindi, FDA’s premium pastry division, which has already demonstrated solid growth in the U.S. market.

Product innovation: Sammontana and FDA have focused on innovative products, such as "free-from" offerings (gluten-free, dairy-free) and individual portions. Between 2019 and 2023, more than €100 million in combined sales came from newly launched products.

Sustainability: Sammontana is committed to ESG (Environmental, Social, and Governance) goals. Its strategy includes the use of renewable electricity, reduction of CO2 emissions, and minimizing waste.

Weaknesses

The ice cream market shows slower growth (a 2.6% CAGR through 2028), which could limit expansion opportunities in that segment.

What I like:

A company with a long history, being a leader in Italy since its founding in 1948, with a well-recognized brand nationwide.

The integration of FDA, which will allow product diversification, adding 27k products to the portfolio in key categories.

High distribution capacity and control over the value chain.

While the debt resulting from the FDA acquisition is considerable, the company demonstrates solid cash flow generation and has shown the ability to pass cost increases onto its customers.

What I like less:

The significant reliance on the Italian market, which currently represents 90% of its business. We'll have to see how they implement the foreign expansion through FDA Group's channels.

Although the brand itself is an asset, given its iconic status in Italy, the market in which it operates is highly fragmented with significant competition, with few entry barriers.

The bond’s IPT, with revised talk now at: 3m€ + 375-400, left me expecting more. La Doria, also a Senior Secured bond, issued in May a 5.5-year NC1 €525mm, same rating (B1/B/B+), at 3m€ + 450, now trading at a DM of +403 and yielding 7.28% to maturity. It's true that the rate environment was different in May, and we are now moving toward more cuts, but it's also true that there are many more geopolitical catalysts, the effects of which on credit are already starting to be felt.