Premium Brands Holdings Corporation

Premium Brands Holdings Corporation (TSX: PBH) is engaged in specialty food manufacturing, premium food distribution and wholesale businesses across British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Nevada, and Washington State.

Recent Updates:

• The company informed the appointment of Mary K. Wagner as an independent non-executive director of the Corporation.
• On August 31, 2020, the Company acquired Global Gourmet Foods Inc., and Allseas Fisheries Inc. Global Gourmet is a leading provider of ready-to-eat kettle-cooked food solutions, while Allseas provides fresh and frozen seafood to retail, foodservice, and wholesale customers in Ontario.

Key Positives:

Strong Revenue Growth: The company has delivered an outstanding performance over the last ten years and reported ~23.8% CAGR growth during FY10 to FY19, which is impressive. Revenue grew from CAD 535.2 million in FY10 to CAD 3,661.8 million in FY19. The growth was depicted by higher acceptability of the products coupled with acquisition strategies etc.

Revenue Trend from FY20 to FY19 (Source: Company Presentations)

Wide Product-presence: The company offers a diversified range of products and derives ~20% of revenue from Sandwiches, 15% from Seafoods and 17% from Protein-based products. Due to a wide range of offerings, we believe that diversified revenue base will provide safety against the market turmoil.                                        

Product Diversification (Source: Company Reports)

Acquisition Strategy: In the recent past, the company acquired two companies Global Gourmet Foods Inc. and Allseas Fisheries Inc. With these acquisitions, the company is enhancing its product presence across ready-to-eat kettle-cooked food segments and frozen seafood segments. We expect the above collaborations would increase the company’s overall sales volume and would support the company’s future income.

Key Negatives

• The stock is trading below its immediate support levels of 5-day, 10-day, and 20-day SMAs, which is a negative indicator. Also, the 14-day and 9-day RSI is hovering near oversold territory.
• The stock has recorded relative weakness against the broader market over the last 1-Month and 5-day trading sessions, and underperformed the index by 3% and 0.5% in the same time.

Q2FY20 Financial Highlights:

• PBH reported its second-quarter results, wherein the company posted a 3.3% y-o-y increase in top-line to CAD 976.6 million. The improvement was due to the positive impact from acquisition and slightly higher revenue from Specialty Foods segment on account of the higher selling price of protein-based products.
• The company reported adjusted EBITDA of CAD 67.1 million, down from CAD 88.3 million in Q2FY19, due to the impacts associated with the COVID-19 pandemic, which includes lost sales and net transitory cost impacts amounting CAD 10.9 million.
• Net earnings stood significantly lower at CAD 13.5 million, as compared to CAD 31.2 million in the previous corresponding period (pcp).                           

Q2FY20 Financial Highlights (Source: Company Reports)

Valuation Methodology: Price to Earnings Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Key Risks: Volatility in the raw material prices would throw challenge for the compoany in retaining its margins and profitability.

Stock Recommendation: The company has well-established brands and has significant presence across the North American market and has a strong client base, which ensures stable business performance amidst the economic cycles.  

However, the stock is trading below its immediate support levels of 5-day, 10-day, and 20-day SMAs, which is a negative indicator. Also, the 14-day and 9-day RSI is hovering near oversold territory.

We have valued the stock using Price to Earnings value-based relative valuation method and have arrived at a target downside of double-digit (in percentage terms). For the said purposes, we have considered industry (Food & Tobacco) mean on NTM basis. Hence, we recommend a ‘Watch’ stance on the stock at the current market price of CAD 96.94 on October 27, 2020.

PBH Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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