Premium Brands Holdings Corp T.PBH

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Premium Brands Holding Corp.

(PBH-T) C$135.84

Still Best-in-class Event

 Adjusting our forecasts mostly to reflect the Westmorland acquisition contribution. The net impact is an ~1% increase in our 2022 and 2023 EBITDA estimates. We have reduced our 2021 EBITDA estimate by 1% to reflect higher mix towards lower-margin distribution sales and cost inflation within the Specialty Foods segment. Our target price increases to $160.00 (up from $150.00) after rolling valuation out another quarter.

Impact: POSITIVE

The Q3/21 results highlight the reason why PBH remains one of our top picks. Overall, there is no change to our positive long-term outlook.

• Absent the cost inflation across a variety of production inputs mostly in SF, which we expect is transitory, PBH still has best-in-class organic sales growth, driven by new sales initiatives, capacity investments, and strategic acquisitions.

• We are forecasting improved EBITDA margins in 2022 and 2023, driven by: 1) ongoing post-COVID-19 normalization; 2) sales deleveraging due to higher production volumes; and 3) production efficiencies.

• Clearwater has shown significant progress in the months since PBH acquired a 50% interest, highlighted by a 670bps jump in gross margin driven by: 1) stronger pricing environment; 2) operational efficiencies; 3) disciplined selling strategy; and 4) leveraging PBH's own seafood market intelligence. In the long term, we expect PBH to capitalize on numerous synergy (revenue) opportunities, including the proprietary access to scarce seafood products.

• PBH has emerged from the pandemic with a much stronger balance sheet and liquidity position. As a result, we expect PBH to continue to pursue an accelerated M&A cadence over the months. Subsequent to the quarter, PBH announced the closing of two acquisitions that would collectively add ~$250mm/ $20mm in incremental sales/EBITDA. The M&A pipeline remains full with potential targets accounting for ~$1.4bln in sales in the advance or active stages.

  TD Investment Conclusion

  In our view, there are very few CPG companies in North America with a better organic revenue growth outlook and/or M&A opportunities than PBH. Consequently, we still see sufficient upside to continue recommending to investors to buy PBH shares.