Premium Brands Holdings Corp

Premium Brands Holdings Corp (TSX: PBH) is engaged in specialty food manufacturing and premium food distribution and wholesale businesses with operations across Canada and the United States. It offers its products and services under various brands, such as Harvest Meats, Penguin Meat Supply, Yorkshire Valley Farms and Ready Seafood.

Key highlights 

• Acquisition: On 9th November 2020, the Company announced that Premium Brands and a Mi’kmaq First Nations Coalition jointly acquire Clearwater, Atlantic Canada’s most extensive wild seafood company.

• Dividend: Despite the challenging operating environment, the company continue to distribute dividend. The company declared a dividend of CAD 5775 per share for the fourth quarter of 2020, payable on 15^th January 2021, with a record date of 31^st December 2020. 

Financial overview 

Source: Company

• In Q 3 2020, the company posted revenue of CAD 1.1 billion, increased by 7% as compared to CAD 968.3 million in the previous corresponding period. The increase in revenue was primarily due to organic volume growth of 9.1% and business acquisitions made by the company during the same period.

Source: Company

• The company posted a gross profit of CAD 213.7 million, increased by 12% in Q3 2020, as compared to CAD 190.6 million in Q3 2019, primarily due to increased revenue and change in sales mix.

Source: Company 

• The company posted a net income of CAD 34.7 million, increased by 29% in Q3 2020, as compared to CAD 26.9 million in the previous corresponding period. The increase in net income was due to low plant start-up and restructuring cost, and lower interest cost in the reported quarter. 

Risks associated with investment

The performance of the company’s business is prone to several risks which could affect its financial performance. Risks related to resource supply, food processing, suppliers, customers, competition, inflation, and foreign exchange exposure, etc., are beyond the management control. 

Valuation Methodology (Illustrative): Price to Earnings 

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The Company has well-established brands and has a significant presence across the North American market, along strong client base, which ensures stable business performance. The sales in many of the Company’s selling channels have returned to, or surpassed pre COVID-19 levels. However, sales in the fine dining, airline and cruise line channels continue to be challenged. The Company would receive stable annual cash flows from Clearwater, while ensuring Clearwater is well capitalized to execute its business plan, including funding its maintenance and growth capital requirements. We have valued the stock using the price to earnings value-based relative valuation method and have arrived at a target upside of low single-digit (in percentage terms). Hence, we recommend a “Watch” stance on the stock at the closing market price of CAD 97.36 on November 26, 2020. We have considered Park Lawn Corp, Freshii Inc, Recipe Unlimited Corp, etc. as the peer group for the comparison.

Daily technical chart. Source: Refinitiv (Thomson Reuters)

Bombardier Inc.

Bombardier Inc. (TSX: BBD.B) manufactures transportation solutions, from commercial aircraft and business jets to rail transportation equipment and related services. The company operates in two segments: Aviation and Transportation. The company mainly operates in Europe, North America, Asia-Pacific.

Recent Highlights:

Recently, the group announced that its apprenticeship training program in association with Texas State Technical College (TSTC) in Red Oak, Texas, has received official registration by the U.S. Department of Labor. The above program offers the targeted students, with the opportunity to enter the high-tech aerospace sector with no formal qualifications.

Q3FY20 Financial Highlights:

• The group announced its quarterly results, wherein the company posted revenue of USD 3,525 million, as compared to USD 3,722 million in the previous corresponding period. The increase was driven by higher income from discontinued operations (USD 2,210 million versus USD 2,175 million in Q3FY19).
• During the quarter, the aviation segment delivered 24 aircraft during the quarter, lower compared to the previous corresponding period due to the realignment of production to the lower demand environment caused by the COVID-19 pandemic. 
• Gross margin and Adjusted EBITDA slide to USD 329 million and USD 176 million, as compared to USD 440 million and USD 255 million, respectively in Q3FY19. Adjusted EBITDA stood lower at 5%, against 6.9% in pcp.
• The company reported a net income of USD 192 million, as compared to a net loss of USD 91 million in Q3FY19.

Q3FY20 Income Statement Snapshot (Source: Company Reports)

Risk: The company is streamlining its business segments and would concentrate on training and aviation segment. However, the operational viability of the above segments are yet to recognise and could hinder the company’s upcoming performance as well.

Stock Recommendation: During the third quarter of FY20, the company reported a gradual recovery of Aviation and Transportation segment and the company showed a 10% growth on y-o-y basis, driven by a record 8 Global 7500 aircraft deliveries, which was offset lower service income due to international border restrictions, lower business activities, and continuation of the travel ban. The company expect the sale of Bombardier Transportation to Alstom still expected to close in the first quarter of 2021. Within the transportation segment, the outlook remains positive and is supported by a USD 34.1 billion backlog boosted by strong industry fundamentals and is a key positive. The company reports liquidity of USD 3 million and has an undrawn credit facility of approximately USD 600 million. However, on the flip side, the company’s major income has been derived from its discontinued segment, while if we exclude the discontinued portion, then the group would have reported a net loss of USD 24 million. However, over the past three months, the company reported a decent price performance, with shares up approximately 30% in the same time, surged approximately 54% in a month over period and added approximately 26.5% over the past five day trading, implies a short-term bullish trend in the stock. However, further escalating coronavirus cases in Europe and North America would again have a weigh on the group’s performance in near-term. Therefore, based on the above facts, we have given a “Watch” recommendation, at the closing price CAD 0.43 (as on November 26, 2020).

BBD.B 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.