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What are we looking for?

Trends in the consumer packaged food group are toward healthier, fresher and less package-intensive offerings. In addition, COVID is altering consumer behaviour and affecting a firm’s costs of doing business. Today, we look at valuations in an industry in transition.

The screen

We used StockCalc’s screener to select the 10 largest manufacturers of processed food on the Toronto Stock Exchange and TSX Venture Exchange. We then used StockCalc’s valuation tools to calculate fundamental (or intrinsic) valuation for each stock to see whether it is undervalued or overvalued compared with its price.

Overview of the techniques used:

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  • Discounted cash flow (DCF value) is a valuation technique in which cash-flow projections are discounted back to the present to calculate value per share;
  • A price comparables (price comps) technique values the company on the basis of ratios from selected comparable companies;
  • An adjusted book value (ABV) is calculated by multiplying book value per share by its historical price-to-book ratio.

If we have analyst coverage, we look at the consensus target price.

More about StockCalc

StockCalc is a fundamental valuation platform with tools to calculate and report on value per share for thousands of public companies listed on major North American stock exchanges. StockCalc also contains numerous tools to understand what the stocks you are investing in are worth. Globe Unlimited subscribers can subscribe to StockCalc using the promo code Globe30, which offers a 30-day free trial and special pricing for the second month).

What we found

You can see in the accompanying table the percentage difference between each stock’s recent closing price and its intrinsic value. The StockCalc Valuation column is a weighted calculation derived from our models and analyst target data.

This industry includes companies that process and package food products including frozen foods, grains, canned and snack foods, health supplements, vitamins and pet products. Let’s look at a couple of these companies:

Maple Leaf Foods Inc. , based in Mississauga, has taken a number of actions to be able to continue to operate efficiently in the face of COVID. During its fiscal year ended Dec. 31, 2020, the company spent an additional $58-million for labour bonus payments, personal protective equipment, incremental sanitation, screening and testing and other preventive measures. With this, sales were able to grow 9.2 per cent in 2020 and margins increased also. Most all of our valuation models for Maple Leaf Foods support a higher price.

Vancouver-based Burcon NutraScience Corp. is a producer of plant-based proteins and ingredients for use in the global food and beverage industries. Its focus is on pea and canola proteins and it also works with soy, hemp and sunflower seed. Burcon points out that plant-based proteins are environmentally friendly and offer a significantly lower carbon footprint compared with animal protein production.

Most of our models support its valuation. We would expect the price to move up to our valuation over the next 12 months. Note our DCF model shows “n/c,” or not calculable; the company has negative cash flow as it builds out its technology so our models defer to the other valuation methods to calculate the weighted average.

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Investing involves risk. StockCalc accepts no liability whatsoever for any loss or damage arising from the use of this analysis.

Select packaged food stocks 

CompanyTickerMarket Cap ($ Mil)Recent Close ($)StockCalc Val. ($)Diff. (%)DCF Value ($)Price Comps ($)ABV ($)Analyst Tgt. ($)1Y Rtn. (%)Div. Yld. (%)
SaputoSAP-T16,029.539.0642.619.141.9343.5654.3142.7513.61.8
Premium Brands HoldingsPBH-T5,201.6119.57119.05-0.480.14106.44138.51129.6045.32.0
Maple Leaf FoodsMFI-T3,494.128.3732.3914.237.4334.9628.0736.2112.82.3
SunOptaSOY-T1,576.015.2215.29-0.9-8.0915.228.6630.71288.3n/a
Jamieson WellnessJWEL-T1,538.238.5837.83-1.921.5622.4629.9244.2524.11.3
Burcon NutraScienceBU-T503.34.705.3714.2n/c4.505.746.83231.0n/a
High Liner FoodsHLF-T444.913.3314.8211.243.6529.2714.8219.80112.71.8
Else Nutrition HoldingsBABY-X255.52.702.13-21.2-1.160.090.486.50154.7n/a
GreenSpace BrandsJTR-X31.90.070.07-1.0-0.650.040.04n/a0.0n/a
Swiss Water Decaf. CoffeeSWP-T27.73.063.4613.1-6.392.497.33n/a-13.8n/a

Source: StockCalc 

Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B.

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