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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Post by retiredcfon Jun 28, 2022 8:07am

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Post# 34786724

TD

Is on their Action Buy List with a $45.00 target. GLTA

Maple Leaf Foods Inc.

(MFI-T) C$25.92

More Price Increases Likely Required to Cover Rising Costs Event

Reporting Q2/22 results August 4. We now forecast EPS of $0.30 ($0.39 previously) vs. $0.29 last year. Consensus now $0.33 (range: $0.26-$0.38).
As with other food processors, we see additional price increases being required to pass through higher transportation/fuel and feed costs, although this is unlikely before late-Q3/22; hence, we have also trimmed our forecasts for next quarter. We have trimmed our EBITDA estimates, but left our EPS forecasts unchanged beyond Q3/22, based on updated commodities and forex, as well as expectations that MFI will start share repurchases in Q4/22.

Impact: NEUTRAL

Q2/22 processing spreads were ~70% below five-year averages (cutting our EBITDA estimate by $9mm), higher bird costs knocked off $4mm, and rising supply chain/transportation/fuel costs accounted for the remaining ~$2mm-$3mm of the revision. Consequently, we expect an 11.3% Meat EBITDA margin in Q2/22 before additional cost pass-through and mix improvements push it to 13.0%/14.2% in Q3/22 and Q4/22, reaching management's target of "the bottom end" of the 14-16% target range by year-end.
In PBP, our 3% constant-currency sales growth forecast for Q2/22 may be optimistic, but initial cuts in promo spend should cut PBP losses slightly.
Reduced near-term profits amidst this highly inflationary environment do not alter our long-term thesis. Construction of the London poultry plant should be completed in a couple of months and the resulting reduction in capex, plus progress toward PBP breakeven, should allow MFI to generate positive FCF and become active on its NCIB by Q4/22, while also deleveraging. After London ramps up to full production, we see Meat margins approaching 16% in 2024, producing ~$350mm in annual FCF.

TD Investment Conclusion

At only 8.5x NTM EBITDA, MFI is trading well below its ~9.5x historical average and closest peers. With this low valuation as the backdrop, we expect a material rise in MFI's share price over the next four quarters as earnings recover rapidly, investors gain confidence that Meat margins can reach 14-16%, PBP progresses toward break-even or better by Q4/23, and large strategic capex projects are completed. Combined, these factors are expected to lead MFI to positive FCF by Q4/22 and 9%/11% FCF yields in 2023/2024.