Lassonde Industries Inc.

Increase in Sales Volume: Lassonde Industries Inc. (TSX: LAS.A) is engaged in the development, manufacturing, and marketing of ready-to-drink fruit and vegetable juices and drinks. As on 11 August 2020, the market capitalization of the company stood at ~CAD 513.71 million.

Quarterly Performance (For the Period Ended 27 June 2020): During the second quarter ended 27 June 2020, sales of the company went up by 18.7% to CAD 498.2 million and operating profit stood at CAD 42.7 million, up by CAD 15.2 million on the same quarter last year. This increase is mainly due to a higher gross margin from the Company’s U.S. and Canadian operations, mainly due to an increase in U.S. sales volume and a decrease in the cost of certain raw materials. Despite the global pandemic, demand for the company’s products rose significantly during the second quarter of 2020, resulting in an increase of 7.5% in adjusted sales. This was mainly due to an increase in sales of private label products, mainly in the United States. During the quarter, profit attributable to the Company’s shareholders stood at CAD $26.0 million

Quarterly Financial Highlights (Source: Company Reports)

Key Risks: The company is exposed to a variety of risks, including the economic, industrial, competitive and regulatory environment, its ability to attract and retain customers, changing consumer preferences, the availability and cost of raw materials and transportation, etc.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: During the quarter, the company generated CAD 78.1 million cash flow from operating activities. At the end of the second quarter, the Company reported a cash balance of CAD 5.3 million. The company will pay its interim dividend of CAD 0.65 on 15 September 2020, with an ex-date of 18 August 2020. As per TSX, the stock of LAS.A is inclined towards its 52-weeks’ high of CAD 188.99 but retains potential for further growth. The stock of LAS.A gave a return of 16.70% in the past three months and a return of 4.56% in the last one month. We have valued the stock using the Price to Earnings multiple based illustrative relative valuation approach and arrived at a target upside of low double-digit (in percentage terms). Considering the current trading levels, decent returns in the past three months, resilient financial performance, and growth opportunities, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 161.50, up by 0.30% on 11 August 2020.

LAS.A Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Premium Brands Holdings Corporation

Redemption of 4.65% Convertible Unsecured Subordinated Debentures: Premium Brands Holdings Corporation (TSX: PBH) is engaged in specialty food manufacturing, premium food distribution and wholesale businesses with operations in various jurisdictions. As on 11 August 2020, the market capitalization of the company stood at ~CAD 3.88 billion. The company has recently announced that it will issue a notice of redemption for 4.65% convertible unsecured subordinated debentures of ~CAD 86.055 million on 11 September 2020, which are due on 30 April 2020. Before the redemption, each debenture holder will have the right to convert them into common shares at a conversion price of CAD 85.90 per share.

Quarterly Performance (For the Period Ended 27 June 2020): During the quarter ended 27 June 2020, the company reported an increase of 3.3% in revenue to CAD 976.6 million but a decline in adjusted EBITDA to CAD 67.1 million. This decline in EBITDA was mainly due to the impact of COVID-19 pandemic including lost sales and net transitory cost impacts. During the second quarter, adjusted EPS of the company stood at CAD 0.57 per share. The company maintained a decent balance sheet and liquidity and raised net proceeds of CAD 308.7 million, increasing its available credit capacity to ~CAD 690 million.

Quarterly Financial Highlights (Source: Company Reports)

Key Risks: The company is exposed to a variety of risks including labor wage inflation, supply chain disruptions, additional storage costs, the general economic conditions, availability of skilled and unskilled labor at reasonable wage levels etc.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Despite the near-term uncertainty due to the outbreak of the COVID-19 pandemic, the Company remains confident in its ability to achieve or outperform its 2023 targets of CAD 6 billion in sales and CAD 600 million in adjusted EBITDA. The company is likely to pay an interim cash dividend of CAD 0.5775 on 15 October 2020, with an ex-date of 29 September 2020. Q3 2020 results are expected to be released on 9^th November 2020. As per TSX, the stock of PBH is trading very close to its 52-weeks’ high level of CAD 102.68 and thus retains limited potential for growth. The stock of PBH gave a return of 13.20% in the past three months and a return of 12.37% in the last one month. We have valued the stock using the EV/Sales multiple based illustrative relative valuation approach and arrived at an upside of low single-digit (in percentage terms). For the said purpose, we have considered High Liner Foods Inc, Alcanna Inc, Sleep Country Canada Holdings Inc etc. as peers. Considering the current trading levels, price movements, and softer market conditions due to the global pandemic, we recommend investors to wait for better entry levels and suggest a watch stance on the stock at the closing market price of CAD 98.12, down by 1.07% on 11 August 2020.

PBH Daily Technical Price Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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