Brad Dunkley Long Premium Brands: Capitalize For Kids Conference 2018

We're posting up notes from the Capitalize For Kids 2018 investment conference.  Next up is Brad Dunkley of Waratah Advisors who pitched a long of Premium Brands Holdings (PBH.TO).


Brad Dunkley's Capitalize For Kids Presentation: Long Premium Brands

•    Largest holding - secular holding
•    Specialty meat biz
•    $3bn sales, $3bn market cap
•    Meat is the fashion business
o    “On Trend” products keyo    Local Authentic brands with a story
o    All natural
o    Ethically raised
o    Low card, high protein
o    Paying for quality is in

•    Premium outperforming mass in beer industry
•    Craft beer volumes crushing it, taking share
•    Not dissimilar
•    Muskoka Brewery - small, but 200 across the country all taking share from Labatt
•    Labatt would buy them, but lose their soul when they become big co. Share gaining would stop
•    Hemplers —> Oscar Meyer is similar analogy. Hemplers only in Pacific North West
•    Hard to compete with the local, and story behind the co
•    First biz in PBH is speciality foods 80% of EBITDA, 20% is food distribution

•    Hemplers is 1 of 40 brands owned by PBH
o    Only buys a biz where the manager wants to stay
o    Focused on high regional market share, not high national market share
o    #1 in Canada in beef jerky + pepperoni stickso    #2 in jerky in US with Oberto acquisition
o    Taking expertise from other businesses and advising acquired businesses. Sharing best practices. Taking certain products from one brand and bringing them to another in another region
o    Most SBUX breakfast sandwiches made by PBH

•    Food Service business
o    premium and customized cuts of meat and seafood
o    High-end restaurants, local butcher shops
o    Focused on “centre of plate” Fish, Steak, Seafood
o    Supply The Keg with steaks across Canada

•    $1bn revenues acquired of LTM period
•    Oberto branded meat stick launch throughout the US
•    Continued QSR / Food service contract wins in sandwich biz
o    QSRs, Convenience stores, retail
o    Helps QSR customers save on labour and spoilage
o    High ROII biz
•    Foodservice expansion into central / eastern Canadao    Opening 1H 2019. New factory
•    Create value thru accretive, low-risk M&A
o    Acquirer of choice, customized transactions - lower multiples paid
o    No integration of assets, target management stays on
o    Higher manager retention - 48 mentioned since 2005, only 2 left
o    kind of like BRK
o    Great reputation as acquirer of choice
o    3rd, 4th gen business where families are more emotionally attached to business.

•    Product innovation
•    Geographic expansion
•    Input sourcing and informational advantages
•    High ROI greenfield projects, driving 4-6% annual organic growth volume
•    Pays 9-10x EBITDA on recent deals
•    EPS CAGR since 2011 26.4%
•    Stock is 17.5% CAGR since 2001, including the most recent drawdown of 23%
•    CEO, CFO haven’t sold shares, continually buying and adding
o    Thinks they are underpaid. No options issued.

•    Down 23% from April ATHs. Why?
o    Missed earnings 4 q’s in a row due to labour costs, factory opening late
o    General sell-off of Canadian consumer stocks
o    Company had perfect timing on equity issuance in April
•    $150mm equity issuance at $117.35
•    $172.5m coverts
•    Tightly held, Turtle creek, Pender west
•    Biggest Equity raise ever at ATH
•    People who finally excited to get in (big bank funds) have blown out, and convert arb funds
o    11.7x NTM EBITDA. Cheaper than Saputo and growing faster than Saputo

•    Recent precedents Big meat cos buying at 14x, 12x currently for PBH
o    No value attributed to company platform
o    Now? Trough sentiment
o    Defensive in macro

•    No price target
o    Buy and forget about it
o    13-15% annual compounder for foreseeable future


Be sure to check out the rest of the presentations from Capitalize For Kids 2018. 

Brad Dunkley Long Linamar: Capitalize For Kids Conference 2016

We're posting up notes from the Capitalize For Kids conference 2016.  Next up is Brad Dunkley of Waratah Capital who pitched a long of Linamar (LNR.TO).


Brad Dunkley's Capitalize For Kids Presentation 2016

•    Linamar makes engine parts, camshafts and transmissions. They have industry leading margins, and ROEs. They also have a construction equipment division, only 14% of sales.

•    Most of it revenues are the power train division which manufactures engine parts. Approximately 70% of revenues from North America and its mainly from the big 3 U.S. OEMs.

•    Linda, who is the daughter of the founder and has been running the company since its IPO and has established a very strong record: since 1986, stock price CAGR of over 16%.

•    Linamar does have a lost cost production, plants are mainly in Canada, lower healthcare costs, no unionized labour and lower CAD currently helps.

•    The alternative for customers is to manufacture these parts internally.

•    Believes market perception that peak SAAR will hurt Linamar is incorrect. Since 1996, SAAR has increased by a CAGR of 1% while Linamar has realized financial performance of 12% CAGR (revenue, EBIT, EPS, etc). Doesn’t believe SAAR will crash like the market is expecting (estimate 8% to 10% from peak levels). Thinks electric vehicle threat is overdone, only 1% of market in 2020.

•    The company has also does a good job of growing content per car (growing in Europe, NA and Asia).

•    Thinks ride-sharing economy will increase miles driven and lower the life of vehicle (current vehicle have an average life of 11yrs). All positives for Linamar going forward.

•    At ~5x earnings, don’t need to be worried of the terminal value of the company.


Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference. 

Blair Levinsky Short High Liner Foods: Sohn Canada Presentation

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is Blair Levinsky from Waratah Capital Advisors who pitched a short of High Liner Foods.

Blair Levinsky's Capitalize For Kids Presentation


-    Questions:
o    What is the situation?
o    Why does it exist?
o    How is it going to change?

-    Crowding in non-resource equities
-    Hot IPO market, expensive food companies
-    Short High Liner Foods (TSE:HLF)
-    Customers such as Walmart, McDonalds for seafood
-    Have seen growth in sales and EBITDA yet volumes have declined 13 quarters in a row, margins have compressed.
-    Attempting to bail themselves out of the mess through acquiring companies with debt.
-    Now they are overlevered and have bad businesses to run
-    Through analysis of the cash flow statement it looks like realized incremental EBITDA/Capex+acqusitions+NWC inv. Between 2011 and 2014 imply average acquisition price of 13.3x multiple which is very high for industry
-    High Liner claims to have a 30% pay out ratio but have averaged -$40MM in FCF for the last 5 years but have been increasing the dividend payout for the large family shareholder who likes dividends
-    Current earnings are $71MM (without adjustments), have told the street they will see $150MM in EBITDA in 2016, difficult to manage given lack of balance sheet flexibility and inability to drive cost cuts


Be sure to check out the rest of the presentations from the Capitalize For Kids Conference.