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 2 July 2020, the market capitalization of the company stood at CAD 516.51 million.

Quarterly Performance (For the Period Ended 28 March 2020): During the first quarter of 2020, the company reported a growth of 17.1% in sales to CAD 472.4 million, mainly due to increased sales of private label products and LAS.A 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 CAD 30.3 million, up by CAD 6.9 million from CAD 23.4 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.

Quarterly Financial Highlights (Source: Company Reports)

Key Risks: The company inherent certain risks and uncertainties, both general and specific which may result in changes in forecasted results and actual results. Though the increasing spread of COVID-19 has resulted in increased sales of the company, the disposable income of the households has declined, which may impact sales and revenue. Investors are recommended not place an undue resilience.

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 is trading slightly above the average levels of its 52-weeks band of CAD 100.10 to CAD 199.33. 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). We have considered Simply Good Foods Co, B&G Foods Inc, and Rogers Sugar Inc etc., as a peer group for comparison purpose. Considering the aforesaid facts, increased sales volumes amidst the pandemic and positive long term outlook, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD162.38, up by 4.7545% on 2 July 2020.

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

Saputo Inc.

Decent Increase in Revenue and EBITDA: Saputo Inc. (TSX: SAP) is a dairy processor and cheese producer that operates in Canada, the U.S., Argentina, the United Kingdom, and Australia and sells products in more than 50 countries. As on 02 July 2020, the market capitalization of the company stood at CAD 13.21 billion.

Yearly Performance (For the Period Ended 31 March 2020): During the year ended 31 March 2020, the acquisition of the dairy crest in the Europe sector resulted in an increase of 10.7% in revenue to CAD 14.94 billion and an increase of 20.2% in adjusted EBITDA to CAD 1.46 billion. The Specialty Cheese Business Acquisition in the International Sector also contributed positively to revenues and adjusted EBITDA. In the same time span, net earnings of the company stood at CAD 582.8 million and EPS was CAD 1.94. During the year, the company generated CAD 1,036.9 million of net cash from operations, up by 17.2% on the pcp. The Board has approved a dividend of CAD 0.17 per share which is to be paid on 9 July 2020.

FY20 Financial Highlights (Source: Company Reports)

Key Risks: The company is exposed to various risks including the product liability; the COVID-19 pandemic; the availability of raw materials because of climate changes and related price variations. The volatility in the international markets and increased competitive markets may further add to the uncertainty.  

Impact of COVID-19: With the outbreak of the Coronavirus, the company witnessed a shift in consumer demand on a global scale and saw a decline in orders in the foodservice and industrial segments. However, the company is expecting sustained demand in all its geographic markets once the dust settles. Despite the current unprecedented environment, SAP is aiming to achieve profitable long-term growth.

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: The company retains a solid financial position and capital structure, which is supplemented by a high level of cash generated by operations. SAP is well-positioned to grow through targeted acquisitions and organically through strategic capital investments. As per TSX, the stock of SAP is trading close to its 52-week low of CAD 29.31, which offers investors a decent opportunity. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and have arrived at a target upside of lower double-digit (in percentage terms). Considering the current trading levels, increasing revenue and EBITDA and resilient business despite the global pandemic, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 32.33, down by 0.1236% on 02 July 2020.

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

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.