market folly

We're posting up notes from the Capitalize For Kids 2018 investment conference.  Next up is Brad Dunkley of Waratah Advisors who pitched a long of Premium Brands Holdings (PBH.TO).


Brad Dunkley's Capitalize For Kids Presentation: Long Premium Brands

•    Largest holding - secular holding
•    Specialty meat biz
•    $3bn sales, $3bn market cap
•    Meat is the fashion business
o    “On Trend” products keyo    Local Authentic brands with a story
o    All natural
o    Ethically raised
o    Low card, high protein
o    Paying for quality is in

•    Premium outperforming mass in beer industry
•    Craft beer volumes crushing it, taking share
•    Not dissimilar
•    Muskoka Brewery - small, but 200 across the country all taking share from Labatt
•    Labatt would buy them, but lose their soul when they become big co. Share gaining would stop
•    Hemplers —> Oscar Meyer is similar analogy. Hemplers only in Pacific North West
•    Hard to compete with the local, and story behind the co
•    First biz in PBH is speciality foods 80% of EBITDA, 20% is food distribution

•    Hemplers is 1 of 40 brands owned by PBH
o    Only buys a biz where the manager wants to stay
o    Focused on high regional market share, not high national market share
o    #1 in Canada in beef jerky + pepperoni stickso    #2 in jerky in US with Oberto acquisition
o    Taking expertise from other businesses and advising acquired businesses. Sharing best practices. Taking certain products from one brand and bringing them to another in another region
o    Most SBUX breakfast sandwiches made by PBH

•    Food Service business
o    premium and customized cuts of meat and seafood
o    High-end restaurants, local butcher shops
o    Focused on “centre of plate” Fish, Steak, Seafood
o    Supply The Keg with steaks across Canada

•    $1bn revenues acquired of LTM period
•    Oberto branded meat stick launch throughout the US
•    Continued QSR / Food service contract wins in sandwich biz
o    QSRs, Convenience stores, retail
o    Helps QSR customers save on labour and spoilage
o    High ROII biz
•    Foodservice expansion into central / eastern Canadao    Opening 1H 2019. New factory
•    Create value thru accretive, low-risk M&A
o    Acquirer of choice, customized transactions - lower multiples paid
o    No integration of assets, target management stays on
o    Higher manager retention - 48 mentioned since 2005, only 2 left
o    kind of like BRK
o    Great reputation as acquirer of choice
o    3rd, 4th gen business where families are more emotionally attached to business.

•    Product innovation
•    Geographic expansion
•    Input sourcing and informational advantages
•    High ROI greenfield projects, driving 4-6% annual organic growth volume
•    Pays 9-10x EBITDA on recent deals
•    EPS CAGR since 2011 26.4%
•    Stock is 17.5% CAGR since 2001, including the most recent drawdown of 23%
•    CEO, CFO haven’t sold shares, continually buying and adding
o    Thinks they are underpaid. No options issued.

•    Down 23% from April ATHs. Why?
o    Missed earnings 4 q’s in a row due to labour costs, factory opening late
o    General sell-off of Canadian consumer stocks
o    Company had perfect timing on equity issuance in April
•    $150mm equity issuance at $117.35
•    $172.5m coverts
•    Tightly held, Turtle creek, Pender west
•    Biggest Equity raise ever at ATH
•    People who finally excited to get in (big bank funds) have blown out, and convert arb funds
o    11.7x NTM EBITDA. Cheaper than Saputo and growing faster than Saputo

•    Recent precedents Big meat cos buying at 14x, 12x currently for PBH
o    No value attributed to company platform
o    Now? Trough sentiment
o    Defensive in macro

•    No price target
o    Buy and forget about it
o    13-15% annual compounder for foreseeable future


Be sure to check out the rest of the presentations from Capitalize For Kids 2018.