Saputo Inc.

Saputo Inc. (TSX: SAP) produces, markets and distributes dairy products, including cheese, fluid milk, extended shelf-life milk and cream products, cultured products and dairy ingredients. The Company has a presence around the world with products sold in over 50 countries. 

Key highlights 

• Improvement on a sequential basis:The company is continuously working closely with customers in the foodservice market segment to develop innovative product offerings adapted to new consumer trends. As a result, it is improving its operating matrix on a sequential basis. Furthermore, volumes of products destined for export markets began to recover during the third quarter in relation to the industrial market segment. This trend is expected to continue during the remainder of fiscal 2021.

Source: Company

• Well positioned for organic growth: The company is well-positioned to grow organically through strategic capital investments in designated manufacturing facilities, as well as through new product development along with expansion in its export markets. We believe that with the upcoming products, the company would expand its customer base, resulting in better revenues.

• Diversifying its product portfolio:The group is looking for diversifying its product portfolio by pursuing alternative dairy opportunities and remains very bullish about dairy products. The company believes that there are multiple sustainable growth opportunities in the dairy space.

• Robust liquidity: As at December 31, 2020, the Company had CAD 505.7 million in cash and cash equivalents and undrawn bank credit facilities of CAD 2.0 billion. The Company believes it is well positioned to navigate current market conditions, given its strong balance sheet.

Financial overview of Q3 2021

Source: Company

• In Q3 2021, the company’s revenue decreased by CAD 127.9 million or 3.3% to CAD 3.7 billion, compared to CAD 3.9 billion in the previous corresponding period. The decrease in revenues was mainly in the USA Sector due to the large proportion of its foodservice activities and also as a result of lower international cheese and dairy ingredient market prices.

• The company posted EBITDA of CAD 431.1 million, increased by CAD 14.1 million or 3.4% in Q3 2021, compared to CAD 417 million in Q3 2020. Shift in consumer demand, higher sales volumes in the retail and industrial market segments positively impacted adjusted EBITDA.

• Net earnings for Q3 2021, stood at CAD 209.8 million, increased by CAD 12.0 million or 6.1%, as compared to CAD 197.8 million in the previous corresponding period.

Risks associated with investment

The performance of the company’s business is prone to several risks which could affect its financial performance. Risks related to resource supply, food processing, suppliers, customers, competition, inflation, and foreign exchange exposure, etc. are beyond the management control.

Valuation Methodology (Illustrative): Price to Earnings 

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

The Company expects the volatility in dairy commodities to be more moderate during the current half of fiscal 2021 and into the start of fiscal 2022. However, the group has well-established brands and has a significant presence across the North American market and a strong client base, which ensures stable business performance. Through its strong portfolio of retail brands, the Company has captured opportunities arising from the increased consumer demand in the retail market segment. It has an innovation pipeline to drive further progress. Moreover, the improvement on a sequential basis in an operating matrix is a key positive. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing price of CAD 37.26 as on March 9, 2021. We have considered Maple Leaf Foods Inc, Dollarama Inc, Premium Brands Holdings Corp, etc. as the peer group for the comparison.

1-Year Price Chart (as on March 9, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

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