Rating Update - Nov.04
.Recent Update Text as of 4NOV15 High Liner Foods reported Q3/15 Adjusted EBITDA of $17.1M vs. our estimate of
. $17.2M and consensus at $18.8M.
While results were largely in line with our estimates, we have seen material
improvements in volume declines (to -2.5% vs. -9.6% sequentially), EBITDA
margins (+150 bps) and leverage (-0.3x) QOQ. We expect these improvements to be
sustained in Q4 and to further improve in 2016 as lower price input costs flow
through the P&L (allowing for further margin expansion).
. HLF maintained their $20M to $25M cost savings run-rate target exiting 2016.
Furthermore, the company believes it can attain these levels in today's negative
mid-single-digit organic growth environment. While we expect organic growth to
improve over our forecast horizon, we have pushed out our cost savings estimate
into 2017. This has resulted in lower estimates, and consequently a lower $22/
share target.
. HLF is trading at 6.2x EV/EBITDA and 5.9x P/E (F2016E), both significant
discounts to its peer group. We expect this valuation gap to close with the
demonstration of sustained improvement in HLF's organic growth profile, which we
believe could start in Q1/16.