Lassonde Industries Inc (TSX: LAS.A) operates as a developer, manufacturer, and distributor of ready-to-drink fruit and vegetable juices and drinks. Apart from these, the group is also a producer of store brand shelf-stable fruit juices and drinks in the United States, along with a principal producer of cranberry sauces. 

Key Updates:

• Healthy Balance sheet: The company reported its D/E ratio of 0.23x, as compared to the industry median of 0.53x. A lower D/E ratio indicates higher financial flexibility and is a key positive. Moreover, the company reported a lower long-term debt to total capital of 9%, as compared to the industry median of 25.5%, which further suggests a lower risk profile.

• Higher debt protection metrics: At the end of Q3FY21, the group’s net debt to EBITDA stood at 4.49x, which is considerably lower than the industry median of 8.73x. This indicates strong debt protection metrics of the firm and remains a key positive.

• Increase in dividend distribution: The company reported a higher dividend distribution of CAD 7.6 million for its Class A shares in 9MFY21, as compared to CAD 6.0 million in pcp. This is impressive as most of the companies are lowering their dividend payment in order to retain liquidity.

Risks: The group is witnessing a rise in several input costs like transportation and logistics costs, warehouse costs and a certain rise in specific raw material costs. Continuation of the above trend might pose a threat to the company’s margins and cash flows. 

Q3FY21 Financial Highlights: 

Q3FY21 Income Statement Highlights (Source: Company Report)

• LAS.A announced its third-quarter results, wherein the company posted CAD 469.2 million, slide from CAD 495.2 million in the previous corresponding period (pcp). This decline was primarily due to a lower sales of private label products in the United States as certain plants witnessed a slower production due to labour scarcity, partly offset by a higher sales volume of national brands in the United States.
• Operating profit stood at CAD 25.4 million, as compared to CAD 40.0 million in Q3FY20 due to a lower revenue, partially offset by a lower cost of sales and slightly lower selling and administrative expense.
• The company posted its net profit at CAD 17.1 million, lower than CAD 26.3 million in pcp. Notably, the company reported a drastic fall in the finance expense due to a decline in the total debt.

 Valuation Methodology (Illustrative): Price to Earnings based

Analysis by Kalkine Group

Stock Recommendation:

We believe the demand for ready-to-drink fruit and vegetable juices and drinks are likely to improve in the coming quarters, supported by higher retail & whole consumption and higher traction from the online segment. This is likely to boost the company’s sales volumes. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a target upside of single digit (in percentage terms). For the said purposes, we have considered peers like B&G Foods Inc, Rogers Sugar Inc etc. Hence, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 152.95 on February 02, 2022.

One-Year Technical Price Chart (as on February 02, 2022). Source: REFINITIV, Analysis by Kalkine Group

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