Same-Store Sales Growth and Stable Gross Margin to Drive Operating Performance: George Weston Limited (TSX: WN) is a Toronto, Canada-based food processing company. The group operates in three businesses, namely retail, real estate and consumer goods via its control of Loblaw, Choice Properties and Weston Foods. WN holds a leading position within each of its operating segments, with market-leading brands in retail, popular locations in real estate and high-quality products in consumer goods. The company has more than 2,400 stores and an offering of over 10,000 private label products, including the top two consumer brands in the country.

Key Highlights:

• Loblaw division is expected to remain focused on improving process and generating efficiency. Further, the company is planning to invest in infrastructure to support its strategic growth areas of Everyday Digital Retail, Connected Healthcare and Payments & Rewards. 

• On an operational point of view, the Management is committed to maintaining its financial plan of Loblaw’s along with retaining its market share with stable gross margin and positive same-store sales, creating efficiencies to deliver operating leverage, returning capital to shareholders, and investing for the future.

Outlook:

Despite a highly competitive market, the company expects for the financial year 2020 to deliver positive same-store sales and a stable gross margin in its Retail segment. The business also anticipates positive adjusted net earnings growth and target to invests approximately CAD 1.1 billion in capital expenditures.

Strong Financial Performance for the year ended December 31, 2019

Key Financial Highlights for FY19 (Source: Company Reports)

WN declared its full-year results, wherein the business posted a revenue of CAD 50,109 million, up 3.2% on y-o-y. Depreciation and amortization rose by 32.8% on a y-o-y basis to CAD 2,318 million. Net interest expense and other financing charges in FY19 stood at CAD 1,704 million, an increase of 79.7% as compared to CAD 948 million in FY18. The increase was primarily driven by the unfavorable year-over-year net impact of adjusting, followed by an increase in adjusted net interest expense and other financing charges. Adjusted net earning available to common shareholders increased 23% to CAD 1,117 million. 

Valuation Methodology: EV/ Sales - Based Relative Valuation

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

Stock Recommendation: The stock of WN is closed at CAD 98.54 with a market capitalization of ~CAD 15.14 billion. The group is uniquely placed to serve its customers through the nation’s largest bricks and mortar store network and Canada’s most convenient online grocery service, name PC Express. Further, the business derives that the majority of its revenue from consumer retailing segment. The company reported decent financial performance in the fiscal year 2019, with growth in both revenue and adjusted EBITDA. Weston Foods demonstrated strong performance with its business having steadied in 2019. Led by the results from its operating segments, the company expects adjusted net earnings to increase in FY20. Looking at the current scenario, investors are relying on their investments in a safer industry like consumer food segments. We have valued the stock using EV/Sales based relative valuation method. We have taken peers like Metro In (TSX: MRU), Empire Company Ltd (TSX: EMP) and Alimentation Couche-Tard Inc. (TSX: ATD) and arrived at a target price which is offering a lower double-digit upside return (in % terms). Considering the recent price movement and industry outlook, and stock potential, we recommend a ‘BUY’ rating on the stock at the closing market price of CAD 98.54, up 4.29% on 20^th March 2020.

WN Daily Technical Chart (Source: Thomson Reuters)

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

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