Premium Brands Holding Corp.
(PBH-T) C$112.45
Temporary Buying Window Opens Up Event
We are adjusting our forecasts mostly to reflect the Q4/21 beat, modestly higher gross margin assumptions (to reflect easing inflationary pressure and pricing in H2), and increased contribution from new acquisitions. The net impact is an ~5% increase in our 2022 and 2023 EBITDA estimates.
Our $160.00 target price and BUY recommendation are both unchanged.
Impact: POSITIVE
The Q4/21 results highlight the reason why PBH remains one of our top picks.
Overall, there is no change to our positive long-term outlook. More specifically, absent the cost inflation across a variety of production inputs, which we expect is transitory and can be passed on (the company pushed through ~$300mm in pricing in 2021, with two-thirds of it in H2/21), PBH still has best-in-class organic sales growth, driven by new sales initiatives, capacity investments, and strategic acquisitions.
In 2022, we expect a tale of two halves starting with the ongoing supply chain and labour pressure, before giving way to the resumption of double- digit EBITDA growth, driven by: 1) PBH leveraging new capacity into more contract wins, given the strength in consumer demand (i.e. the weekly sales trend has been positive so far in Q1) 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) Maintaining industry-leading fill rates; 5) Additional selling price increases to offset cost pressure in what has been a very inflationary start to the year; and 6) Potential acquisitions (~15 files that would contribute ~$1.6bln to the top-line are in the advanced/active stages).
TD Investment Conclusion
Before yesterday's 7% rally, PBH's shares were almost 25% lower than 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 ~12.2x. 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 amongst its North American CPG peers