maple leaf foods
Toronto symbol MFI, is Canada’s largest food processing company. Its products include fresh and prepared meats and poultry, mostly under the Maple Leaf and Schneider brands. It also makes fresh and frozen bakery products through 89.8%-owned Canada Bread Co. Ltd.
RIOCAN REAL ESTATE INVESTMENT TRUST, $18.34, Toronto symbol REI.UN, announced its first expansion into the U.S. this week. The trust has formed a joint venture with Cedar Shopping Centers, Inc. (New York symbol CDR). Cedar owns shopping centres in northeastern and mid-Atlantic regions of the U.S. The new joint venture will hold seven of Cedar’s malls in Massachusetts, Pennsylvania and Connecticut. RioCan will own 80% of this new company. It will also receive common shares and warrants in Cedar. Exercising these warrants would give RioCan a 15% stake in Cedar....
Canada Bread, $43, symbol CBY on Toronto (Shares outstanding: 25.4 million; Market cap: $1.1 billion), has $405.9 million of goodwill on its balance sheet. That’s a high 54.6% of shareholders’ equity of $743.6 million. But it’s a more reasonable 36.9% of the company’s $1.1-billion market cap. More important, the goodwill was largely added to Canada Bread’s balance sheet from a series of acquisitions the company made in 2002. Most of the companies that Canada Bread bought were small. But they did include its December 2002 purchase of parent company Maple Leaf Foods’ U.S. and U.K. bakeries, including Grace Baking Company, for $262 million. The companies that Canada Bread bought in 2002 have proven profitable, and are a stable part of its operations, so the chance of a writedown at this point, seven years later, is small....
Holding companies give investors the choice of buying the parent company or its publicly traded subsidiaries. In many cases, we like some subsidiaries but not others, so we prefer to invest in them directly and avoid the parent. Each situation is different, of course, and sometimes we recommend the parent over the subsidiaries. A good example is Maple Leaf Foods. Another is ATCO, the parent company of Canadian Utilities, which is a long-time recommendation of The Successful Investor. Like most holding companies, ATCO trades for less than the total value of its various pieces. This is known as a “holding-company discount.” Right now, you can buy a share of ATCO for $38, and get roughly $42 worth of Canadian Utilities. That means ATCO’s other businesses are essentially free....
MAPLE LEAF FOODS INC. $9.17 (Toronto symbol MFI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 129.3 million; Market cap: $1.2 billion; Price-to-sales ratio: 0.2; SI Rating: Average) produces fresh and prepared beef and poultry under the Maple Leaf and Schneider brands. It also owns 89.8% of CANADA BREAD CO. LTD. $41 (Toronto symbol CBY; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 25.4 million; Market cap: $1.0 billion; Price-to-sales ratio: 0.6; SI Rating: Above Average), which is Canada’s second-largest producer of baked goods after Weston Bakery. At current prices, Maple Leaf’s stake in Canada Bread is worth roughly $7.25 per Maple Leaf share. That means you can buy Maple Leaf’s meat-processing operations, which account for 65% of its revenue, for just $1.90 a share....
BCE INC., $25.46, Toronto symbol BCE, continues to lower its costs in the face of tough competition for new phone customers. Its current restructuring plan, which includes cutting jobs, relocating employees and selling surplus real estate, should save the company $400 million a year, starting in 2010. In the three months ended June 30, 2009, BCE’s earnings rose 5.2%, to $447 million from $425 million a year earlier. Per-share earnings rose 9.4%, to $0.58 from $0.53, on fewer outstanding shares. These figures exclude costs related to the company’s restructuring and other unusual items. Revenue fell 2.1%, to $4.3 billion from $4.4 billion. The company continues to lose residential phone customers to cable companies and wireless providers, but these losses are slowing. As well, the recession is weighing on BCE’s wireless operations, which signed up 45,000 new customers during the quarter, compared to 83,000 a year earlier. Revenue per wireless user also fell by 4%. However, revenue from BCE’s satellite-TV services gained 9.3%, and high-speed Internet revenue rose 2.8%....
CANADA BREAD CO. LTD. $41 (Toronto symbol CBY; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 25.4 million; Market cap: $1 billion; Price-to-sales ratio: 2.5; SI Rating: Above Average) is Canada’s second-largest maker of fresh and frozen breads, rolls and bagels. (Weston Bakery is the largest). Canada Bread also makes pastas and sauces. Its main brands include Dempster, Tenderflake and Olivieri. As part of its long-term growth strategy Canada Bread plans to expand its overseas operations, which account for 25% of its sales. It’s now one of the largest makers of bagels and bakery products in the U.K. Canada Bread also owns three bakery plants in the U.S. In the first half of 2008, Canada Bread raised its prices to offset rising energy and wheat costs. Now that these costs have fallen, the company is starting to realize the benefits of this move. In the three months ended March 31, 2009, its earnings rose 22.9%, to $0.59 a share (or a total of $14.9 million) from $0.48 a share (or $12.2 million) a year earlier. These figures include unusual items, such as costs related to a fire at a bakery plant in the U.K. The company received $1.7 million in insurance proceeds to repair the damage. If you exclude these items, earnings per share rose 15.4%, to $0.60 from $0.52. Sales rose 7.9%, to $413.1 million from $382.9 million....
MAPLE LEAF FOODS INC. $8.70 (Toronto symbol MFI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 129.3 million; Market cap: $1.1 billion; Price-to-sales ratio: 1.0; SI Rating: Average) is Canada’s largest food-processing company. It mainly produces fresh and prepared beef and poultry under the Maple Leaf and Schneider brands. Maple Leaf also owns 89.8% of Canada Bread. In the three months ended March 31, 2009, Maple Leaf’s sales rose 6.3%, to $1.3 billion from $1.2 billion a year earlier. Ingredient costs rose during the quarter, but Maple Leaf was able to pass these on by raising the prices on some of its products. As well, Maple Leaf gets 30% of its sales from outside of Canada, so the lower Canadian dollar helped its results. Earnings soared to $2.9 million, or $0.02 a share, from a loss of $10,000, or nil per share, a year earlier. If you disregard costs related to the company’s restructuring plan, earnings per share would have risen to $0.05 from $0.04....
All three of these leading Canadian food processors are down from their 2008 highs. However, they should all benefit from falling prices for wheat and other raw materials. As well, the recession may actually help their sales by prompting more people to eat at home. Even so, we only see two of them as buys right now. SAPUTO INC. $22 (Toronto symbol SAP; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 207.1 million; Market cap: $4.6 billion; Price-to-sales ratio: 0.8; SI Rating: Average) is Canada’s largest producer of dairy products such as milk, butter and cheese. It also has operations in the United States, Argentina and Europe. Last December, Saputo bought Neilson Dairy, the dairy division of Weston Foods, for $465 million. Neilson makes a wide variety of dairy products in Ontario, and generates $600 million a year in sales....
GENNUM CORP., $5.43, Toronto symbol GND, has dropped its friendly takeover bid for rival chipmaker Tundra Semiconductor Corp. (Toronto symbol TUN) after Tundra accepted a higher offer from U.S.-based Integrated Device Technology Inc. Gennum will now receive a $5-million (Canadian) break-up fee from Tundra. To put this figure in context, Gennum lost $800,000 U.S., or $0.02 U.S. a share, in its first fiscal quarter, which ended February 28, 2009. Gennum is still a buy for long-term gains....
GENNUM CORP., $4.80, Toronto symbol GND, fell 9% on Friday after it increased its friendly takeover bid for Ottawa-based Tundra Semiconductor Corp. (Toronto symbol TUN). Like Gennum, Tundra makes chips and components for computer networking hardware, like modems and routers. Gennum’s products also let TV broadcasters store, edit and transfer video signals without losing picture quality. Gennum has increased its bid by 30%, and is now offering $112 million in cash and stock for Tundra. Two-thirds of Tundra’s shareholders must vote in favour of the deal at a special meeting on May 8. If they do, Gennum plans to close the purchase by June 1....