Pacific Trader: Does Premium Brands warrant its premium share price?

Credit: Oberto Sausage Co. via Twitter

Oberto is one of many specialty food brands under the Premium umbrella

After suffering a spell of indigestion in 2020, the stock seems to have recovered

The stock: Richmond-based Premium Brands Holdings Corp. (TSX:PBH) proves that the consumer staples sector doesn’t have to be dull and defensive. The company is an acquisitor and consolidator, doing for the specialty food processing industry what CGI does for B2B software or Stantec for engineering and architecture. In 2019, PBH attracted a $200-million private placement from the Canada Pension Plan Investment Board, which, notwithstanding one former executive’s propensity to jump vaccine queues, is recognized worldwide as a canny investor.

The drivers: Something about 2020 stuck in investors throats, however, making them question PBHs premium valuation. The meat packing industry was a hotbed of COVID-19 outbreaks, and Premium Brands wasnt immune. Then last fall, the firm announced its largest ever takeover, worth $1 billion including assumed debt, in the volatile seafood sector. It would buy Maritime fish packing company Clearwater Seafoods in a joint venture with a coalition of Mi‘kmaq First Nations. To the markets, it was all a little new and scary.

The release of fourth-quarter and full-year financials last week offered reassurance. Despite the pandemic-related loss of airline, cruise ship and foodservice business and extra costs related to personal protective equipment, hygiene measures and worker bonuses, PBH notched 10-percent higher sales in 2020 than in 2019. Management further signalled its confidence by hiking the dividend 15 percent. After months of being rangebound around $100, the share price has resumed its more familiar upward march.

Word on the street: “As the company returns to its pipeline of acquisitions, we could see further transactions leading up to the realization of 2023 goals of $6 billion in revenue and $600 million of adjusted EBITDA [earnings before interest, taxes, depreciation and amortization],” wrote Neil Linsdell, head of research for iA Capital Markets, in a note to clients.

Coming and going: The S&P/TSX Composite index is getting more of a West Coast flavour with the addition of Canaccord Genuity Group (CF), Endeavour Silver Corp. (EDR), Lithium Americas Corp. (LAC), NexGen Energy (NXE), Village Farms International (VFF) and Westport Fuel Systems (WPRT)—among 13 stocks to be added the week of March 22. (Another addition is Vancouver-founded Turquoise Hill Resources, now headquartered in Montreal.) Vancouver-based Lundin Gold (LUG) is being dropped from the index. Stocks added to the S&P/TSX Composite tend to receive a bump in value as index funds buy the stocks to add to their portfolios.