Lassonde Industries Inc.

Lassonde Ready to Rise the Growth Wave: 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 4 June 2020, the market capitalization of the company stood at CAD 522.04million.

Quarterly Performance (For the Period Ended 28 March 2020): The company has recently released the results for the first quarter of 2020, wherein it reported a growth of 17.1% in sales to CAD472.4 million. This increase was largely due to an increase in sales of private label products and the company believes that a non-negligible portion of this increase is mainly due to the uncertainty surrounding the COVID-19 pandemic as consumers accumulate food reserves. In the same time span, operating profit of the company stood at CAD30.3 million, up by CAD6.9 million from CAD23.4 million in the pcp. This increase was due to a higher gross margin from the U.S. and Canadian operations of the company, resulting from an increase in sales volume and a decrease in the cost of raw materials. During the quarter, operating activities of the company generated CAD24.9 million in cash and reported a cash balance of CAD31.7 million.

Quarterly Financial Highlights (Source: Company Reports)

Outlook: The industry sales volumes have taken a jump in the recent quarter. Barring the significant external shocks, including the impacts of COVID-19 and the Sun-Rype acquisition, LAS.A expects to achieve a higher y-o-y sales growth rate in the coming period.

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 1QFY20, the company saw improved profitability in its U.S. operations due to strong demand for its products towards the end of the quarter. The stock of LAS.A gave a return of 17.82% in the past three months and a return of 21.29% in the last one month. The stock is moving towards its 52-weeks’ high levels of CAD199.33 and hence is likely to deliver higher returns. We have valued the stock using the price to earnings multiple based illustrative relative valuation method and have arrived at a target price, offering an upside of lower double-digit (in percentage terms).  For the said purpose we have considered Rogers Sugar Inc (TSX: RSI), Simply Good Foods Co (NYSE: SMPL), B&G Foods Inc (NYSE: BGS) etc., as a peer group. Considering the attractive returns in the past one month, increasing sales volumes amidst the pandemic and positive long-term outlook, we recommend a ‘Buy’ rating on the stock at the closing  market price of CAD164.12, up by 0.06707% on 4 June 2020.

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

Maple Leaf Foods Inc.

Higher Sales and Strong Balance Sheet: Maple Leaf Foods Inc. (TSX: MFI) is a consumer packaged meats company, originally from Canada. The company produces prepared meats and meals, fresh pork, and poultry and turkey products. As on 4 June 2020, the market capitalization of the company stood at CAD3.16 billion.

Quarterly Performance (For the Period Ended 31 March 2020): During the quarter ended 31 March 2020, the company witnessed a sales growth of 12.8% to CAD1,022.8 million and reported an adjusted EBITDA margin of 8.9%. This was driven by strong retail volumes, higher sales to Asian markets and a favorable mix-shift towards sustainable meats. The net impact on adjusted operating earnings from COVID-19 was not material in the quarter. While it amplified revenues, margins were slightly compressed due to increased production and selling, general and administrative expenses. During the quarter, the company reported a strong balance sheet with net debt of CAD640.6 million and undrawn committed credit of CAD1,300.0 million.

Quarterly Financial Highlights (Source: Company Reports)

What is on the Horizon: In the second quarter of 2020, Maple Leaf Foods expects strong demand from the retail channel and lower sales in the foodservice channel. It is also likely to witness strong pork demand from Asian markets and continued traction in plant protein. MFI estimates its capital expenditures for 2020 to be at least CAD50.0 million below the previously stated range of CAD650.0 million to CAD700.0 million. 

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

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

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

Stock Recommendation: While the short-term impact of COVID-19 may be dynamic, Maple Leaf Foods' purpose and long-term strategy remain unchanged. It is expecting a middle-to-high single-digit revenue growth in the meat protein group. The stock of MFI is trading slightly below the average levels of its 52-weeks’ band of CAD17.05 to CAD35.82. The stock gave a return of 11.27% in the past three months and a return of 1.55% in the last one month. We have valued the stock using EV/EBITDA multiple based illustrative relative valuation method and have arrived at a target price offering an upside of lower double-digit (in percentage terms). Considering the attractive returns in the past three months, current trading levels, positive outlook, and decent financial performance, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD25.57, down by 0.3896% on 4 June 2020.

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

Disclaimer

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