Maple Leaf Foods Inc T.MFI

Alternate Symbol(s): MLFNF

Consumer Defensive Packaged Foods

Maple Leaf Foods Inc. is a carbon neutral company. The Company's portfolio includes prepared meats, ready-to-cook and ready-to-serve meals, snacks kits, value-added fresh pork and poultry, and plant protein products. It operates through two segments: the Meat Protein Group and the Plant Protein Group. The Meat Protein Group segment is comprised of prepared meats, ready-to-cook and ready-to-serve meals, and value-added fresh pork and poultry products that are sold to retail, foodservice and industrial channels, and agricultural operations in pork and poultry. It includes brands such as Maple Leaf, Maple Leaf Prime, Schneiders, Schneiders Country Naturals, Mina, Greenfield Natural Meat Co., and many regional brands. The Plant Protein Group segment is comprised of refrigerated plant protein products, grain-based protein and vegan cheese products sold to retail, foodservice and industrial channels. The Plant Protein Group includes the brands Lightlife and Field Roast.

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Maple Leaf Foods Inc

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Post by retiredcfon Aug 19, 2020 8:34am

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Post# 31427117

TD

The highlighted portion is why it remains on their Action Buy List. GLTA

Maple Leaf Foods Inc.

(MFI-T) C$29.60

Exports to China Temporarily Suspended Event

Last night, Maple Leaf reported that it has temporarily suspended pork exports to China due to recent protocols adopted by the Chinese government that requires any plant reporting a COVID-19 positive case to suspend exports to China until 14 days after the last positive case. (Note, a U.K. company faces a similar situation). With community spread occurring in Brandon, Manitoba — MFI employs ~4% of Brandon's population — there are still new (although much fewer) cases surfacing among MFI employees.

Impact: NEGATIVE, but Believed to be Short-lived

Exports to China were running at ~$4mm/week in Q2. We believe that exports were suspended effective August 6; as such, if we assume that shipments do not resume until quarter-end, that would represent ~$32mm of lost high-margin exports to China and ~$8mm of lost EBITDA in Q3.
Meat Protein EBITDA margin jumped to a record 13.3% in Q2/20 and management has indicated that structural margins (assuming normal market conditions) are currently ~13% (with maybe a 50bps band on either side). The $8mm shortfall alluded to above could push Q3/20 EBITDA margin down ~90bps. We had already built-in a modest 50bps buffer (by modelling 12.5% margin) for Q3/20; as such, if these exports are suspended through the end of the quarter, it could push Q3/20 Meat margins closer to 12% and EPS $0.02 below our current $0.21 forecast. Of course, this assumes no mitigation, which is unlikely.
Some of this product could be redirected into domestic or other international markets and some may have be inventoried. Maple Leaf may even be able to export to China from its much smaller Lethbridge plant. However, in our opinion, the replacement sales would not fully offset the lost exports to China, nor would the associated margin be as high.
This development could pressure the shares temporarily, but we would view it as a buying opportunity as we see substantial upside to our $45.00 target price and even greater upside to valuation once investors get more comfortable pricing in MFI's 14-16% Meat Protein EBITDA margin target (for 2022) and a return to positive FCF (expected by mid-2022)