Stock Market Series

Canadian Food Businesses – Should I Buy and Hold (Part 2)?

In the last post we had evaluated three of the six biggest Canadian food businesses.   I have concluded Saputo Inc. is the company to buy and hold long-term so far.

Today,  we will look at the other three Canadian food businesses.

George Weston Limited (TSE:WN)

George Weston Limited is a Canadian food processing and distribution company. Founded in 1882, the company currently has two reportable operating segments: Weston Foods and Loblaw, and holds cash and short term investments. The Weston Foods operating segment includes a fresh bakery business in Canada, and frozen, artisan style bakery and biscuit businesses throughout North America. The Loblaw segment, which is operated by Loblaw Companies Limited, is a food and pharmacy retailer. Loblaw provides Canadians with grocery, pharmacy, health and beauty, apparel, general merchandise, retail banking, credit card services, insurance and wireless mobile products and services.

Here is the financial statement analysis from 2013 to 2016:

Screen Shot 2017-08-23 at 11.39.38 PM

Empire Company Limited (TSE:EMP.A)
Empire Company Limited is a Canadian conglomerate that mainly engages in food retailing and related real estate through wholly-owned subsidiary Sobeys Inc. Sobeys Inc.’s headquarter is in Stellarton, Nova Scotia, and it is the second largest food grocer in Canada with over 260 supermarkets operating in Canada and around 1500 under a variety of banners such as Price Chopper, IGA and Safeway.
Here is the financial statement analysis from 2014 to 2017 (the company’s fiscal year
ends on May every year):
Screen Shot 2017-08-24 at 9.18.35 AM

Maple Leaf Foods Inc. (TSE:MFI)

Maple Leaf Foods Inc. is a leading consumer protein company that produce high quality prepared meats, lunch kits snacks and value-added fresh pork and poultry products sold under flagship Canadian brand such as Maple Leaf, Maple Leaf Prime and Schneiders. In addition, Maple Leaf Foods Inc. manages and produces live hogs and hog feed.  The company has a hog production operation with about 200 production locations in Manitoba and Saskatchewan and owns five feed mills in Manitoba.

Here is the financial statement analysis from 2013 to 2016:
Screen Shot 2017-08-24 at 8.20.28 AM
At this point, I know I would not invest in Empire Company Limited because the company had a negative profit in 2015.  In addition, the company’s retained earning decreases on a yearly basis and it has a high P/E ratio of 36.80.  Moreover, Empire Company Limited’s net income on total revenue is very low, which means the company probably is not making any money at all.
Furthermore, I have doubts with George Weston Limited because of the company’s high payroll and high return on capital expenditure.  Additionally, George Weston Limited has more preferred shares than common shares.  Companies that have durable competitive advantage tend not to have any preferred stocks.
Ultimately, I would pick Maple Leaf Food Inc. over the other two food business for several reasons.  First of all, the company’s payroll decreases every year.  Second of all, it has a high current ratio and low debt to shareholder’s equity ratio.  Third of all, the company’s return on capital expenditure is generally quite low (with the exception of 2015, but it went back down in 2016).  Lastly, the company currently holds treasury stocks.
So which company would give me a higher return on dividends? Saputo Inc. or Maple Leaf Foods Inc.?
If I buy Saputo Inc. stocks with $8,800 right now, I would get a 1.45% annual return on dividends.  On the flip side, I would get a 1.2% annual return on dividends if I invest $8,800 in Maple Leaf Foods Inc. stocks right now.   In conclusion, Saputo Inc. has a slight advantage.
Although food businesses’ returns are not as high as banks and insurance companies, they are still decent investments if you want some diversification in your portfolio.
Feel free to leave a comments below! Catch you on the flip side!

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