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:

• Favorable Macros: 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.

• New Product launches: To retain its market share, the company has consistently offered new products to its customers as per the changing requirements. During the first quarter of FY22, the company Launched new Oasis Health Break varieties, Simple Drop Support & Active (flavored water with vitamins), Stefano line of organic wines, Mont-Rouge cider-based seltzer. These are at par with the growing customers need and is expected to support the company’s upcoming sales volumes.

• Rise in dividend payment: The company reported a higher dividend distribution of CAD 6.0 million in Q1FY22 to its Class A and Class B shareholders, as compared to CAD 4.5 million in pcp. This is impressive as most of the companies are lowering their dividend distribution in order to retain liquidity. Moreover, the stock of LAS.a is carrying a dividend yield of 2.265% on an annualized basis, which looks impressive considering the persisting interest rate scenario.

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.

 Financial Highlights: Q1 FY22

Q1 FY22 Income Statement Highlights (Source: Company Report)

• A announced its Q1FY22 result, wherein the company posted its revenue of CAD 509.0 million, surged from CAD 466.7 million in Q1FY21. The growth was supported by higher income from both Canada and United States primarily due to a favorable change in the sales mix of private label sales.
• The company reported a surge in the total expenses at CAD 486.6 million, as compared to CAD 435.4 million in pcp, due to both rise in the cost of sales and selling and administrative expenses Hence, operating profit dipped CAD 22.4 million from CAD 31.3 million in pcp.
• The company posted its net profit of CAD 15.0 million, as compared to CAD 20.4 million in pcp, 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:

During the first quarter of FY22, the company implemented a multi-year strategy to drive long-term value, accelerate growth, as well as improve overall margins and profitability. During the last nine months of 2022, the group is focusing to revitalization of its U.S. operations and the upgrade of its technology infrastructures along with the commencement of new demand planning and transportation management systems within the region. This is expected to boost the company’s overall operations of the firm.

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 123.62 on May 27, 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 May 27, 2022). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV

 Technical Analysis Summary

Disclaimer

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