Defensive Business Acts As Hedge: Lassonde Industries Inc. (TSX: LAS.A) produces and distributes fruit juices and alcoholic and non alcoholic beverages worldwide. The company also has specialty food products segment through which it offers a wide range of sauces and broths.

FY19 Financial Highlights: For the period ended December 31, 2020, LAS.A declared its full-year results, wherein the company posted its sales of CAD 1,678.3 million, higher than CAD 1,594 million in FY18. The increase in the top-line was driven by growth in the private label products. Operating profit stood at CAD 100.8 million, down from CAD 105.19 million in FY18. The decline was due to the unfavorable effects on productivity due to the installation of new equipment followed by a rise in costs in the US. Cash from operating activities stood higher at CAD 140.7 million in FY19, as compared to CAD 114.7 million in FY18. Net profit stood at CAD 74.9 million, including a tax gain of CAD 15.3 million, as compared to CAD 68 million. The lower profitability was on account of higher financial expenses and decline in operating profit, partially offset by lower income tax expense. The company lowered its long-term debt to CAD 248.96 million, from CAD 297.27 million in FY18.

Financial Highlights (Source: Company Reports)

Valuation Methodology (Illustrative): P/E based approach

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock price soared ~28% in the last one month, outperforming the index by ~14%. The company has a strong product line which is likely to support the future growth. Further, its investment in production capacity should further drive the volume. The company is likely to benefit from the acquisition of Old Orchard Brands and Sun-Rype Products. The integration of Old Orchard Brands is likely to optimize the company’s manufacturing process and drive productivity savings. Also, the acquisition provides an additional avenue for growth for the company through the expansion in the concentrate/frozen juice market. We believe the spike in consumer demand led by pantry stocking amid COVID-19 outbreak to drive sales in the near-term. Moreover, the company expects its sales to be higher in FY20. We have valued the stock using the price to earnings-based relative valuation methodology and used NTM industry median of consumer non-cyclical and arrived at a target price offering a lower-double digit upward potential (in % terms). Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 145 as on April 17, 2020.

LAS.A Daily Price Chart (Source: Thomson Reuters)

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