Lassonde Industries Inc. (TSX: LAS.A) is a Canada-based company engaged in the development, manufacturing, and marketing of ready-to-drink fruit and vegetable juices and drinks. The company has its operations across Canada and the United States. 

Key highlights

• Geographical Sales highlights: At present the company has only one operating segment which is the manufacturing and marketing of a wide range of ready-to-drink juices and frozen juices, etc. For Q3FY21 the sales from Canada grew to CAD 223.39 million as compared to CAD 209.58 million in pcp. The total contribution of sales was highest from the US region of CAD 244.98 million in Q3FY21, though it declined by 13% from CAD 284.37 million in pcp. The decline in sales was because of lower private label products on account of supply chain disruptions.

• Dividend declaration: On February 16, 2022, the company announced a quarterly dividend of CAD 0.88 per share which applies to its Class A subordinate voting registered as of February 28, 2022. Further, for 9MFY21 dividends paid were CAD 2.41 per share as compared to CAD 1.895 in pcp, applicable to both its A &B class of shares. The group emerges strongly on its corporate governance policies which are reflected in its continuous dividend distribution history.

• Corporate updates: On December 20, 2021, the company received the nod for the share buyback of its 80,000 Cass A subordinate voting shares (2.52% of the total outstanding Class A shares) in the open market. On normal occasions, buyback represents the increasing confidence of the management in the prospects of the company. The company will be releasing its Q4 2021 financial results on March 24, 2022.
• Strong Debt Management: The company outperformed in terms of Debt management on the various metrics, stating its Debt-to-Equity aspect, the group reported 0.23x for a similar period as compared to the industry median of 0.54x. To counter the rising interest rates, the company reported a lower portion of 9.0% of its long-term Debt to the Capital in Q3FY21 as compared to the industry median of 25.8%. The lower debt metrics are a key positive for the group to avoid the burden of rising interest rates in the current scenario.

Source: Company filings, Analysis by Kalkine Group 

Risks associated with investment

The company is exposed to seasonality risks on account of the low yield of fruits or the sharp rise in prices because of the supply chain or production issues. Further, the labor shortage, rise in the cost of raw materials, and foreign exchange risks are a few of the key uncertainties which the business faces at any given point. 

Financial overview of Q3FY 2021 (Expressed in thousands CAD)

Source: Company Filing 

• The company reported a decline in its total sales by 5.2% to CAD 469.2 million in Q3FY21 from CAD 495.2 million in pcp. The decrease was primarily from the lower sales of its private-label products in the US on account of labor shortage and supply chain disruptions.

• The Operating profit for Q3FY21 was CAD 25.4 million vs CAD 40.0 million in pcp. During the reported period, the group faced multiple headwinds from the rising cost of key raw materials, increase in the marketing and warehousing costs in the Canadian region, and higher transportation costs.

• For Q3FY21 the company recorded Profit before income taxes of CAD 23.2 million as compared to CAD 35.2 million in pcp.

• The company reported a Net Income of CAD 17.17 million in Q3FY21 which is lower by CAD 9.2 million, compared to CAD 26.23 million in pcp.
  

Valuation Methodology (Illustrative): Price to Earnings multiples Based

Analysis by Kalkine Group 

Stock recommendation 

The company reported a strong set of revenue numbers of CAD 1.40 billion for 9MFY21, which is slightly lower than CAD 1.46 billion in pcp, despite facing multiple headwinds, such as labor shortage, the spike in the cost of raw materials, supply chain disruption, etc. Further, the company kept its debt management better than the industry median, saving the group from facing higher financing costs in the current scenario of rising interest rates. On the valuation front, the stock is measured on the Price to Earnings multiple bases. We have considered Rogers Sugar Inc., Sunopta Inc., John B Sanfilippo & Son Inc., Mission Produce Inc., etc as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating at the closing market price of CAD 145.83 on March 8, 2022. Additionally, the 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 March 8, 2022). Source: REFINITIV, Analysis by Kalkine Group 

Technical Analysis Summary

Disclaimer

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