Premium Brands Holding Corp.
(PBH-T) C$105.22
Shares Offer Compelling Value Event
We are adjusting our forecasts, mostly to reflect the Q1/22 beat and some fine-tuning of our model. The net impact is a ~3%/1% increase in our 2022 revenue/EBITDA estimate. Our 2023 estimates are largely unchanged. We are also introducing our 2024 EBITDA estimate of $657mm.
Our $160.00 target price and BUY recommendation are unchanged.
Impact: SLIGHTLY POSITIVE
Although the tug-of-war between company fundamentals and macro pressure continues, with the latter winning for now, our positive long-term outlook on PBH is unchanged. More specifically, absent cost inflation across a variety of production inputs, which are being passed on (i.e. despite pushing through another ~$123mm in pricing in Q1/22, or 10% y/y, volumes continued to rise), PBH still has, in our view, best-in-class organic sales growth, driven by new sales initiatives and capacity investments. This is further complemented by a large pipeline of potential strategic acquisitions.
For the rest of 2022, we are still expecting a tale of two halves, with H1/22 dominated by ongoing supply-chain and labour pressure, before giving way to stronger double-digit EBITDA growth in H2/22, driven by: 1) leveraging new capacity into more contract wins, given the strength in consumer demand (i.e., positive weekly sales trend so far in 2022) and the tight labour market faced by QSR/retail customers; 2) New program launches across its portfolio and expansions in the U.S.; 3) Production efficiencies from higher volume, facility expansions, and increased automation; 4) Selling price catch-up; and 5) Potential acquisitions (~18 files that would contribute ~$1.7bln to the top line are in the advanced/active stages).
Together, we are forecasting H2/22 EBITDA growth of 26% versus 15% in H1/22.
TD Investment Conclusion
PBH's shares are down almost 25% from their November highs, driven down — like many of its peers — by concerns surrounding supply chain, inflation, and labour availability. Consequently, valuation has fallen well below its two-year average of ~14.5x consensus forward EBITDA to ~12.0x. We view this as an attractive opportunity to buy a solid Canadian company highlighted by, in our view, one of the best long-term organic revenue growth and M&A profiles among its North American CPG peers.