CIBC2022 Retail & Consumer Conference - March 22, 2022
Premium Brands Holdings Corporation (PBH-TSX) — Neutral
Company Profile
Premium Brands Holdings Corporation focuses on acquiring and
building specialty food businesses in North America. It houses
over 50 different brands in two segments (Specialty Foods and
Premium Food Distribution), and includes six platforms: protein,
sandwich, seafood, distribution, bakery and culinary.
Investment Thesis
1) Roll-up story: PBH acquires quality businesses with
entrepreneurial management. Balance sheet (~3.3x net
debt/2022E EBITDA, ex-lease accounting) is somewhat
stretched and PBH has proven access to capital; 2) Solid organic
growth: targeting a 6% organic volumes CAGR through 2023
(+6% average since 2015) to reach $6B sales goal; 3) Margin
expansion has been difficult: tight U.S. labour market and
pork/beef inflation related to COVID-19 and African Swine Fever
have pushed up costs and could make the 10% EBITDA margin
goal (2023) difficult to achieve. This has been made more difficult
by the surge in inflation in late 2021 and early 2022.
Price Target (Base Case): C$120.00
We value PBH on the average of 2022E and 2023E EBITDA,
applying a 15x multiple on Specialty and 10x multiple on
Distribution. This implies a blended multiple of ~13x, in line with
PBH’s five-year average. We account for the Clearwater
investment using a discounted cash flow (DCF) with a 5%
discount rate.
Upside Scenario: C$140.00
In this scenario we assume the following for our 2022 and 2023
estimates: higher organic volume growth, resulting in sales
350 bps above our estimates and +20 bps EBITDA margin. We
assume valuation continues to climb, and place 16x on Specialty
and 11x on Distribution. A series of large acquisitions at
reasonable values would also provide a positive impact.
Downside Scenario: C$90.00
We assume minimal M&A growth and reduce organic volume
growth assumptions, resulting in a 400 bps decrease in revenue
estimates and a decline in EBITDA margins by 50 bps versus our
forecasts. Such a slowdown in both organic and M&A growth
would warrant a lower multiple, so we have assumed 13.5x for
Specialty and 8.5x for Distribution.