CANADA BREAD CO. LTD. $43 – Toronto symbol CBY

CANADA BREAD CO. LTD. $43 (Toronto symbol CBY; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 25.4 million; Market cap: $1.1 billion; Price-to-sales ratio: 0.7; Dividend yield: 1.9%; TSINetwork Rating: Above Average; www.canadabread.ca) is Canada’s second-largest producer of baked goods, after Weston Bakery. It also makes pastas and sauces. Its main brands include Dempster, Tenderflake and Olivieri.

Canada Bread’s sales rose from $1.3 billion in 2006 to $1.7 billion in 2008. The gain largely came from bakeries the company bought in the U.K. and U.S. However, sales fell to $1.6 billion in 2010, mainly due to unfavourable exchange rates.

Before unusual items, the company’s earnings per share rose from $3.09 in 2006 to $3.31 in 2007. Its 2008 earnings fell to $2.87 a share, but rebounded to $3.20 in 2009. The lower 2010 sales pushed down its 2010 earnings to $2.85 a share.

A big part of Maple Leaf’s restructuring is Canada Bread’s plan to build a new, $100-million bakery in Hamilton, Ontario. This plant, which opened in September 2011, is Canada’s largest bakery. The new plant also let Canada Bread close three outdated Toronto facilities.

In addition to making Canada Bread more efficient, this new bakery will help it launch new products. For example, it recently started selling a new line of breads, called Dempster’s Country Originals, that have no artificial preservatives, artificial colours, artificial flavours or high-fructose corn syrup. These products will help Canada Bread take advantage of rising demand for healthier food.

Low liquidity a risk factor

The stock trades at 13.0 times the $3.30 a share that Canada Bread will likely earn this year. The $0.80 dividend yields 1.9%. However, Maple Leaf’s large stake in the company hurts its liquidity.

Canada Bread is a hold.