Clearwater Seafoods Incorporated

Clearwater Seafoods Incorporated (TSX: CLR) is a distributor of shellfish and seafood which operates across Asia, North America, and Europe. The company derives its majority revenue from its European segment. The group has a decent global presence and is known for its superior quality, food safety, product diversity and reliable worldwide delivery of premium wild, eco-certified seafood.

The Company would disclose its third quarter results on November 17, 2020.

Premium Brands Holdings and FNC Holdings to acquire Clearwater Seafoods:

• On November 09, 2020, CLR announced that Premium Brands and FNC Holdings have agreed to acquire all of the issued and outstanding common shares of Clearwater at a price consideration of CAD 8.25 per share.
• The total value of the deal is valued at CAD 1 billion, including the debt of CLR.
• With this, Premium Brands will use its value-add expertise, brand-building capabilities and extensive customer relationships to enhance its global presence within the seafood segment.
• First Nations under Mi'kmaq would hold ~50% of the stake in CLR and hold Clearwater's Canadian fishing licenses within a fully Mi'kmaq owned partnership. 
• As per the agreement, CLR would operate its brand independently along with its employees as well.
• This strategic investment represents a transformational change in Canadian fisheries, catapulting First Nations into a leading global position in the seafood industry with the largest holdings of shellfish licences and quotas in Canadian fisheries

Q2FY20 Financial Highlights:

• CLR announced its second quarter results, wherein the company posted a 31.1% y-o-y decline in its sales at CAD 105.968 million. The decline was primarily attributed to the temporary closure of foodservice segments, strict social distancing and other measures targeted for the reduction spread of the COVID 19. 
• Gross margin stood at CAD 18.398 million, down significantly from CAD 31.587 million in the previous corresponding period (pcp). Gross margin in terms of sales stood lower at 17.4%, as compared to 20.5% in Q2FY19.
• Adjusted EBITDA stood at CAD 18.923 million, lower than CAD 30.250 million in pcp.
• However, net earnings improved to CAD 10.555 million, against CAD 8.011 million in the previous corresponding period.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risk: The foodservice segment is yet to open in a full-fledged manner. Further breakout of COVID-19 would hamper the recovery and may affect the supply-chain of the company. Further, change in consumption pattern, and consumer preference would be another key factor which might dampen the overall demand dynamics.

Stock Recommendation:

With the new collaboration, CLR would likely to continue it operate under its existing brand name, which is a key positive. The company has enormous global exposure and is targeting profitable and growing markets, channels and client-base. Premium Brands Holdings and FNC Holdings will acquire Clearwater and will pay CAD 8.25 per share in cash to CLR’s shareholders. After the acquisition news, the CLR stock appreciated by ~16% and closed near to the offered price levels. Since there is negligible upside left in the stock price, we suggest the investor to ‘Sell’ the stock book the profit at the closing price of CAD 8.15 on November 11, 2020.

CLR Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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