Entering text into the input field will update the search result below

Premium Brands Holdings Corp.: Over-The-Top Valuation

Jaulian Financial profile picture
Jaulian Financial


  • "A good company is not always a good stock" is true for Premium Brands Holdings which faces disconnect between fundamentals and valuation despite an impressive track record of increasing shareholder wealth.
  • Trades at a steep premium to its sector and the broader market as investors love the growth promise of a consumer staple safe haven ignoring the risk of overvaluation.
  • The stock price implies unrealistically high future growth expectations beyond the completion of a major capacity expansion project.
  • We suggest to SELL the stock ahead of a downward re-rating of stock price after new sandwich plant completion.

Company Description

Premium Brands Holdings (OTCPK:PRBZF) is a Canadian-listed specialty food products manufacturer headquartered in Richmond, BC, with operations in Canada and the US. It had annual sales of around USD1.4 billion in 2016. Sandwiches is the largest product line with 21.9% revenue contribution, followed by processed meats (17.1%) and beef (16.2%).

Revenue by Product (2016)

Source: Annual Information Form, 2016

The company reports its performance under two segments, Specialty Foods (mainly sandwiches, processed meats, snacks and deli products comprising 59.7% of revenue) and Premium Food Distribution (mainly beef, seafood, pork and poultry comprising 40.3% of revenue) with most of its sales in Canada and a smaller presence in the US.

Revenue by Geography (2016)

Source: Annual Information Form, 2016

Investment Thesis

Good company but not a good stock

We have tremendous respect for the management of PBH as it has delivered on its growth plans, successfully integrated newly acquired businesses and exercised efficient capital allocation over the years. Key persons like the CEO and CFO have had long tenures with the company and they have held their positions for over 15 years now. PBH has managed its investor relations very well by communicating with the investors via investor presentations, MD&A and conference calls. Corporate financial disclosures have consistently provided ample details to make a decent analysis. Management has set measurable targets for itself like:

  • Organic growth rate of 4%-6%pa in revenue
  • Long-term RONA (return on net assets) of 15%
  • Minimum hurdle rate of 15% for all acquisitions and project capital investments
  • Short-term EBITDA margin target of 8.5%-9% for 2017 and
  • Target range of 4.0-4.5x for total debt to EBITDA ratio

Having said all of this, we have to ask ourselves whether this amazing company is still a good stock to own at prevailing valuations. We believe investors are paying too

This article was written by

Jaulian Financial profile picture
I love to write about stocks, that's all. There is nothing profound in the musings here. Don't consider any of these ramblings as investment advice.My areas of interest are sustainable competitive advantage, margin of safety and asymmetric risk reward opportunities.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.