Saputo, Inc. – Value Analysis (TORONTO:SAP) : September 13, 2017

Capitalcube gives Saputo, Inc. a score of 84.

Our analysis is based on comparing Saputo, Inc. with the following peers – Maple Leaf Foods Inc., High Liner Foods Incorporated, Xylitol Canada Inc., George Weston Limited, North West Company Inc., Metro Inc. and Empire Co. Ltd. Class A (MFI-CA, HLF-CA, XYL-CA, WN-CA, NWC-CA, MRU-CA and EMP.A-CA).

Investment Outlook

Saputo, Inc. has a fundamental score of 84 and has a relative valuation of OVERVALUED.

Fundamental Score

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Company Overview

  • Considering peers, relative outperformance over the last year and the last month suggest a leading position.
  • It currently trades at a Price/Book ratio of (3.77).
  • SAP-CA‘s operating performance is relatively good compared to its peers. The market currently does not expect high earnings growth relative to its peers but seems to expect the company to maintain its relatively high rates of return.
  • SAP-CA has relatively high profit margins while operating with median asset turns.
  • Compared with its chosen peers, changes in the company’s annual earnings are better than the changes in its revenue, implying better than median cost control and/or some economies of scale.
  • SAP-CA‘s return on assets currently and over the past five years suggest that its relatively high operating returns are sustainable.
  • The company’s relatively high pre-tax margin suggests tight control on operating costs versus peers.
  • While SAP-CA‘s revenues in recent years have grown faster than the peer median, the market gives the stock a P/E ratio that is around peer median suggesting that the market has some questions about the company’s long-term strategy.
  • The company’s level of capital investment seems appropriate to support the company’s growth.
  • SAP-CA has the financial and operating capacity to borrow quickly.

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Leverage & Liquidity

SAP-CA has the financial and operating capacity to borrow quickly.

  • With debt at a relatively low 8.79% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 19.44%), and a well-cushioned interest coverage level of 26.19x, SAP-CA can probably borrow quickly. We classify the company as Quick & Able in terms of its capacity to raise additional debt.
  • All 7 peers for the company have an outstanding debt balance.

SAP-CA has maintained its Quick & Able profile from the recent year-end.

  • SAP-CA‘s interest coverage is its highest relative to the last five years and compares to a low of 11.53x in 2016.
  • Though its interest coverage increased to 26.19x from 25.05x (in 2017), its peer median remained relatively stable during this period at 8.45x.
  • Interest coverage rose 1.07 points relative to peers.
  • SAP-CA‘s debt-EV is similar to last year’s low of 8.36%, which compares to the 2014 high of 16.17%.
  • Compared to 2017, debt-EV has remained relatively stable for both the company (8.79%) and the peer median (19.44%).

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Maple Leaf Foods Inc. 0.24 2.24 39.15 3752.31
High Liner Foods Incorporated 43.82 2.05 3.27 11.32
Xylitol Canada Inc. 58.53 1.02 -2.7 -56
George Weston Limited 39.59 1.5 4.65 22.86
North West Company Inc. 14.15 2.23 12.25 43.31
Metro Inc. 13.09 1.03 12.35 49.71
Empire Co. Ltd. Class A 24.74 0.87 2.26 29.48
Saputo Inc. 8.79 2.05 26.19 67.89
Peer Median 19.44 1.77 8.45 36.39
Best In Class 0.24 2.24 39.15 3752.31

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Company Profile

Saputo, Inc. engages in the manufacture, market, and trade of dairy products. It operates through the following market segments: Retail, Foodservice, and Industrial. It offers cheese, milk, cream, yogurt, butter, milk powder, and dairy ingredients. The company was founded by Emanuele Saputo Sr. in September 1954 and is headquartered in Saint-Léonard, Canada.


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