Stock Market Series

Canadian Food Businesses – Should I Buy and Hold (Part 1)?

I am sorry that I have not posted anything for while.

I have been busy with my work and my research to improve the return of my investments.

Let’s get back to the main topic.

So far we have looked at whether Canadian banks and insurance companies are great investment to hold long-term.   In this post, we will look at Canadian food businesses because they provide basic needs for the general public.

Loblaws (TSX: L)

Loblaws is a supermarket chain with over 2000 stores in Canada, headquartered in Brampton, with stores in British Columbia, Alberta, Ontario and Quebec.  Its parent company is Loblaw Companies Limited, which is Canada’s largest food distributor. Loblaw Companies Limited also has businesses in the financial and commercial real estate sectors.  Here are the financial statement analysis from 2013 to 2016:

Screen Shot 2017-08-19 at 9.44.09 PM

Metro, Inc. (TSE:MRU)

Metro, Inc. is a Canadian food retailer operating in the provinces of Quebec and Ontario. The company is based in Montreal, Quebec, and it is the third largest grocer in Canada, after Loblaw Companies Limited and Sobeys.  The Company operates or supplies a network of over 940 food stores under various banners, including Metro, Super C and Food Basics, as well as approximately 260 drugstores under the Brunet, Metro Pharmacy and Drug Basics banners.  Here is the financial statement analysis from 2013 to 2016:

Screen Shot 2017-08-19 at 10.41.04 PM

Note: Treasury common shares is actually positive not negative.  It was a mistake when I was doing the chart.

Saputo Inc. (TSX: SAP)

Saputo Inc. is not a grocer, instead it is a Montreal-based Canadian dairy company that produces, markets, and distributes a wide array of dairy products, including cheese, fluid milk, extended shelf-life milk and cream products, cultured products and dairy ingredients. It is one of the top ten dairy processors in the world.   Moreover, the company operates in Canada, the United States, Argentina and Australia.  Furthermore, the company’s products are sold in over 40 countries worldwide. Here is the financial statement analysis from 2014 to 2017 (the company’s fiscal year ends on March of every year):

Screen Shot 2017-08-20 at 11.21.26 PM

So far, I know I won’t invest in Loblaws because of the company spend a lot of money on payroll and capital expenditure.  I am quite shocked because Loblaws is a huge grocery chain and you think the company’s management would do a good job.

Although Metro, Inc. is able to manage its payroll really well and has the highest return on equity, the company’s return on capital expenditure keeps on increasing on a yearly basis.  This worries me as the company has to spend more every year to acquire and maintain its fixed assets in order to stay competitive.

Ultimately, it is best to invest in Saputo Inc. so far because the company has the lowest return on capital expenditure and debt to shareholders’ equity ratio.   Although Saputo Inc. spend a lot on payroll, I am not too worried as the company has the highest net income on total revenue.

We will look at Maple Leaf Foods IncGeorge Weston Limited and Empire Company Limited in the next post.  Feel free to leave any comments below.  Catch you on the flip side!

 

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