Maple Leaf Foods is among stocks featured
) decision to spin off its pork operations into a new publicly traded company should allow valuation of MFI to move higher, as it will now be solely based on the larger, higher-margin and more stable consumer packaged goods business, said TD Cowen analyst Michael Van Aelst.Maple Leaf announced plans on Tuesday to spin off its pork business to shareholders as a new, yet unnamed company to be listed on the TSX in early 2025.
“Many investors had no interest in MFI shares because of the challenges predicting hog/pork market fundamentals,” Mr. Van Aelst commented in a note to clients. “These same investors, and some others, are unlikely to invest in ‘New Pork’ which, when combined with its illiquid/ small cap status, could limit “New Pork” valuations to ~5x, at least initially, in our view. This would be a discount to the 7-9x of some larger U.S. peers.
“Comparable protein-based CPG companies like Premium Brands and Hormel are currently trading at 10.5x/12.6x and we believe that, post spinout, the new Maple Leaf can trade at 10x or above as it generates EBITDA margins mostly in the 12%-15% range, attractive free cash flow, and mid-single digit revenue growth.
While the separation should allow for greater focus on the individual business units’ strategies, Mr. Van Aelst does not anticipate a meaningful change in the business outlooks or his EBITDA forecasts. “Anticipated dis-synergies of less than $5-million are immaterial and could be made up for by greater throughput at “New Pork” slaughter facilities,” he said. “The transaction should leave MFI shareholders with exposure to a CPG company with dominant brands, state-of-the-art processing facilities, unique RWA growth avenues in Canada and the U.S., without the significant margin volatility of recent years caused by a material dislocation in the hog/pork market factors.
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