Canada’s Food Producers: Who’s the Fairest of Them All?

Find out how 4 of this country’s biggest food suppliers stack up.

| More on:
The Motley Fool

Canada’s grocery industry is clearly undergoing a revolution.  First it was the Sobey’s take down of Safeway’s western Canadian stores.  Now, Loblaw is joining forces with Shoppers Drug Mart.  Both transactions took the headlines by storm, and given the market’s reaction, have been smiled upon by investors.

With the front-end of the industry consolidating, what might this mean for the companies that actually produce food?  With fewer, bigger players, they are going to have to adapt.  Let’s run through some numbers to see which of Canada’s most prominent grocery suppliers might be best suited for your hard earned investment dollar.

Free cash

Generally speaking, the collection of 4 names provided below have a sturdy record of generating free cash.  The table below displays the cumulative free cash for each over the past 5 years and compares it to cumulative sales over this period.  Only Maple Leaf Foods (TSX:MFI) has a somewhat suspect record.

Saputo (TSX:SAP)

Weston’s   (TSX:WN)

High Liner Foods (TSX:HLF)

Maple Leaf Foods

Cash from ops

$2,453.5

$12,312.0

$187.0

$1,032.8

Cap ex

561.2

5,169.0

40.9

1,080.9

Free cash flow

1,892.3

7,143.0

146.1

-48.1

FCF Margin

6.4%

4.4%

4.2%

n/a

Source:  Capital IQ

Balance Sheet

Given their ability to (more or less) generate free cash, we know that we’re dealing with a collection of quality companies.  Let’s check out the respective financial positions to ensure financial risk isn’t a concern.  Total debt/equity for each is provided below.

Company Name

Total Debt/Equity

Saputo

75.3%

Weston’s

98.2%

Maple Leaf Foods

129.0%

High Liner Foods

180.5%

Source:  Capital IQ

Saputo adds another notch to its belt.  Over the past five years not only did the company carry the best FCF Margin, but also has the most financial flexibility in the group.

Valuation

Based on the figures we’ve looked at thus far, it stands to reason that Saputo should trade at a premium to the other names.  Let’s see if this holds as we compare some of the multiples at which these names trade in the following table.

Company Name

P/E LTM

P/E Fwd

P/BV

P/FCF

Saputo

19.7

15.7

4.1

26.9

Weston’s

22.6

18.0

2.1

35.8

Maple Leaf Foods

20.1

16.2

2.2

n/a

High Liner Foods

79.7

9.2

2.7

4.6

Source:  Capital IQ

Aside from a couple of High Liner’s multiples, the group does not look cheap and relative to the other truly large-cap name in the group, Weston’s, Saputo actually looks reasonably priced.  Even though Saputo appears better from a free cash and balance sheet standpoint, its valuation isn’t out of line.

Foolish Takeaway

With retail consolidation occurring in Canada, supplier margins are set to be squeezed. This is another thing to like about Saputo as it has an international focus and generated just 35% of revenues here in the past quarter.  Though not cheap, people need to eat, and therefore, keeping the companies that make this necessity into a reality in mind is always a prudent move for investors.

Shoppers Drug Mart is one of the 5 stocks that we’ve profiled in our special FREE report “5 Stocks to Replace Your Canadian Index Fund”.  To download this report and learn about the remaining 4, simply click here now.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.

Follow us on Twitter and Facebook for the latest in Foolish investing.

Fool contributor Iain Butler doesn’t own shares in any of the companies mentioned at this time.  The Motley Fool doesn’t own shares in any of the companies mentioned.   

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

Oil pumps against sunset
Energy Stocks

Is it a Good Time to Buy in the Energy Sector?

Boosted by a very bullish supply/demand environment, energy stocks like Canadian Natural Resources and Tourmaline have much further to go.

Read more »

Investing

2 Stocks to Buy Offering Better Value Than Air Canada

Air Canada has been a popular stock for years, but despite its low price, these two picks are much better…

Read more »

money cash dividends
Investing

How to Make $373/Month in Passive Income With These 2 TSX Stocks

You could bring in passive income of $4,482 annually, or $373 per month!

Read more »

clock time
Stocks for Beginners

3 Stocks to Start Investing Today

Looking for a set of stocks to start investing today? Here are some great options that offer growth and income…

Read more »

investment research
Dividend Stocks

Young Investors: Create Cash Flow With This Top Dividend Stock

If you're a young investor looking for cash flow, you need a strong dividend stock and solid banking program designed…

Read more »

Illustration of bull and bear
Investing

Is the Stock Market Selloff Over?

Throughout this week, many stocks have been gaining value and rebounding from their lows. So, is the stock market selloff…

Read more »

potted green plant grows up in arrow shape
Investing

Retirement 101: How Investors Can Turn $20,000 Into $500,000 in 25 Years

These top TSX dividend stocks have made some investors rich.

Read more »

Hand writing Time for Action concept with red marker on transparent wipe board.
Dividend Stocks

3 Superb Dividend Stocks I’m Ready to Buy

The market is full of great options for income-seeking investors. Here are three superb dividend stocks to buy now.

Read more »