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Saputo president and CEO Lino Saputo Jr., right, and his father Lino, chairman of the board, get set for the the company's annual meeting in Laval, Que., on Tuesday, July 31, 2012.Paul Chiasson/The Canadian Press

Canadian cheese maker Saputo Inc. is signalling that it is set to increase its South American operations with an acquisition in Brazil, according to an analyst who follows the company.

The company has been making comments suggesting that it is looking to South America's largest economy for growth, BMO Nesbitt Burns analyst Peter Sklar wrote in a recent report. The comments have come on conference calls and during a trip to see investors in the U.S., Mr. Sklar said.

In its first-quarter call, Saputo specifically called Brazil a "good target country" for the acquisition of a milk processing business, he noted. Speaking with investors on the marketing trip, "we found M&A was a recurring theme of discussion and noted that Saputo indicated it "believed" it would make further acquisitions."

Adding it all up, "we view an acquisition in Brazil as a strong possibility," Mr. Sklar wrote. His take is that Saputo would be unlikely to make a big deal to start off, but that the huge country could eventually be a significant source of business.

Saputo has been an acquisition machine, growing rapidly through purchases, and the company has a presence in South America already so there is some familiarity with the region. Montreal-based Saputo, according to its own web site, is now Argentina's third largest milk processor.

An acquisition in Brazil would be relatively small. Saputo has a market capitalization of $8.5-billion and Mr. Sklar estimated that individual purchases in the country would be unlikely to be bigger than $300-million. He pointed out that processors in Brazil don't have margins as strong as Saputo, but "Saputo has a track record of significantly enhancing the EBITDA [earnings before interest, taxes, depreciation and amortization] of acquisitions through operational improvements, and combined with the accumulation of a number of acquisitions, over time Brazil could still result in meaningful value creation for shareholders."