Lassonde Industries Inc. (TSX: LAS.A) is engaged in the manufacture and market a wide range of ready-to-drink juices and drinks, fruit-based snacks in the form of bars and bites as well as frozen juice concentrates in North America. The Company is the leading producer of fruit juices and drinks in Canada and one of the two largest producers of store brand shelf-stable fruit juices and drinks in the United States.

Key Updates:

• Positive Guidance: For FY22, the management expects to deliver moderate sales growth over FY21. The company is planning to improve its selling price in the U.S. geography, which is expected to deliver benefits in the second half of FY22. Moreover, during the first quarter of FY22, the company initiated a multi-year strategy of installation of a new single-serve production line, which is expected to drive long-term value, accelerate growth, as well as improve overall margins and profitability.

• Higher Domestic Sales: The company reported a revival in the domestic sales and posted a revenue of CAD 868.7 million in FY21, which is higher than CAD 825.0 million in FY20. This is impressive and showing a revival in demand supported by an increased demand for private label products in Canada coupled with selling price adjustments that had a positive impact on the Company’s national brand sales. Notably, during FY21, the company derived ~46% of its revenue from Canada.

• Healthy Balance sheet: The company reported a healthy D/E ratio of 0.22x in FY21, as compared to the industry median of 0.52x. A lower ratio suggests a higher financial flexibility as the company has a to pay lower interest costs. Moreover, the company’s long-term debt to total capital stood at 8.7% in FY21, as compared to the industry median of 24.1%. This indicates that the company has lower balance sheet risk, which is a key positive, as the group would be better placed during economic cycles.

Risk Associated with the Investment:

The operations of the company might be hindered due to supply-chain and labor-related challenges, which might lower the company’s ability to meet customer demand. Moreover, a rise in input cost such as transportation costs, warehousing expenses, and the cost of raw materials due to inflationary pressure might dampen the company’s profitability margins. 

FY21 Financial Highlights:

FY21 Income Statement Highlights (Source: Company Report)

• A announced its full-year result, wherein the company posted its revenue of CAD 1,892.8 million, stood lower than CAD 1,980.9 million in FY20. The decline was primarily due to lower income generated from the United States region on account of lower demand for the private label products across the region.
• The company reported improved cost management and posted a decline in total expenses at CAD 1,774.5 million, as compared to CAD 1,828.9 million in FY20. Despite a fall in total expenses, operating profit dipped to CAD 118.3 million from CAD 151.9 million in FY20, primarily due to a lower income as mentioned above.
• The company posted its net profit of CAD 78.4 million, as compared to CAD 101.8 million in FY20, due to a lower operating income, partially supported by a decline in financial expenses and a lower income tax expense.
  

Valuation Methodology (Illustrative): Price to Earnings Based

Analysis by Kalkine Group

Stock Recommendation:

For 2022, the group is focusing on revitalizing the U.S. segment, specifically improving its operations capacity, cost structure and overall capabilities. In Canada, LAS.A is focusing to e to strengthen its operations in Canada by upgrading IT infrastructure and enhancing the capacity and productivity. These initiatives are likely to result in improved prospects for the company on a medium to long-term time frame.

We have valued the stock using the P/E based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like B&G Foods Inc. High Liner Foods Inc etc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock of LAS.A at the last closing price of CAD 145.99 on April 20, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on April 20, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary

Disclaimer

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