TD report on new ceo Event
The company announced the appointment of Mr. Louis Frenette, a 30+ year
food and consumer products veteran, as its President and Chief Executive Officer.
Impact: SLIGHTLY POSITIVE
The search for a replacement to the former, and suddenly departed, President
and CEO, Mr. Lionel Ettedgui, is over. However, we would preface this by saying
that this is the second full leadership change we have witnessed since we initiated
coverage on Colabor in 2011. Over that period, the share price has fallen from $10.00
to $0.47 currently. The challenges were many (i.e. competitive pressure, contract
losses, inefficiencies, and execution missteps) and well known. Can these issues
be fixed? We believe that this is a tougher question to answer as two previous
management teams have been unable to do so.
What we do know is that Mr. Frenette brings with him, what appears to be (his
mandate begins on November 25, 2019 and we have not had the opportunity to talk
to management) solid leadership experience in the Canadian food and consumer
products industry since 1987, including:
Parmalat Canada (2014 - 2018), President and Chief Executive Officer;
Bonduelle North America (2012), President and Chief Executive Officer;
Danone Canada (2004-2012), President and Chief Executive Officer.
There is still significant work to be done to restore GCL to its historical profitability.
While valuation may look attractive, we are looking for four things before getting
more positive: 1) margin stability; 2) sales and earnings consistency; 3) a discernible
move below 3.0x leverage; and 4) stability at the top level of management. The last
point has mostly been addressed with Mr. Frenette's hiring but given the various
management shuffles over the years, we remain cautiously optimistic.
We believe that the stock should be up in the near-term on this news and begin to
stabilize now that new leadership is in place bringing the total return to target in line
with our HOLD recommendation.