Opinions
Robert McWhirter
High Liner Foods
HLF-T
COMMENT
Jan 06, 2017
Stock price when the opinion was issued
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The company is 120 years old and is the leading brand in North America in frozen value added seafood, number 1 in the Canadian retail segment and number 1 in the U.S. food services segment. Eating fish is considered a healthy alternative to eating meats and although Americans are not big fish eaters, there is good growth potential as attitudes may change. It is paying down debt as well as increasing the dividend by 30% and it recently reported record results. Trades at 7X earnings and insiders own 40%, almost unheard of.
#1 supplier to retail channel in Canada, and #1 in US to food services. Sells under own name and private label. Seafood consumption low in NA, huge potential for growth. Revenue growth stalled with consumers cutting back on higher-priced items. In rally mode again. Huge free cashflow, buying back lots of shares, increased divvie by 30%, paying down debt. Dirt cheap at 8x PE. Insiders own 40%. Feels it will be sold down the road.
HLF hit a multi-year high as the Mrs. Pauls and Van de Kamp acquisition looks solid. It continues HLF's plan to diversify its global supply chain, and it already co-manufactures for the brands. There will be a small 1c negative impact to earnings initially, but the strategic rationale makes sense for the long term. HLF is buying $75M in sales on a base of about $950 currently. The stock is up 18% YTD yet is still only 8X earnings. Debt continues to be high, however. We like the deal and the momentum. We would be OK buying this in a TFSA but for more aggressive investors only.
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High Liner (HLF-T) or Clearwater (CLR-T)? Sold his holdings on this about 3 months ago. Both stocks have had about a 22%-25% haircut in the last 90 days. Both are free cash flow generators, 8.2% for Clearwater and 6.1% for this one. There is $55 million of free cash flow for Clearwater, about 50% more in absolute dollars than on this one. ROE is about the same. The big difference in the coming year, is on the ROE, where it is forecasted to be 21% for this company. In comparison, Clearwater appears to be better value with better growth prospects.