Premium Brands Holdings’ Seafood Expansion Continues to Pay Dividends

Premium Brands Holdings (CA:PBH, US:PRBZF), the Vancouver-based specialty food products company, in January 2021 undertook a 50/50 partnership with the Membertou First Nation in Nova Scotia, Miawpukek First Nation in Newfoundland and Labrador, and five other Mi’kmaq communities in Atlantic Canada, to acquire Nova Scotia-based Clearwater Foods for $1 billion including the assumption of debt.

The deal was the single-largest investment by a Canadian indigenous group in the seafood industry. The seven Mi’kmaq communities invested $250 million in equity for their 50% interest in the partnership. The First Nations communities financed their investment through a 30-year loan from the First Nations Finance Authority.

The former Clearwater shareholders got an excellent price for their shares — a 60.2% premium ($8.25 a share) to Clearwater’s average volume-weighted average price for the 20 days preceding the strategic review announcement on March 5, 2020 — so it was a winning transaction for both the buyer and seller.

“We are proud to partner with the Mi’kmaq First Nations communities in this unique opportunity to enhance First Nations’ participation in commercial fisheries at the same time building the seafood portfolio within the Premium Brand ecosystem,” stated George Paleologou, president and CEO of Premium Brands in November 2020, announcing the transaction.

Everybody Wins

Two years later, the purchase of Clearwater Foods appears to be a giant home run for both parties.

Premium Brands’ Q4 2022 results highlighted the impact of Clearwater’s record year of sales, generating $604.5 million in 2022, a 13.4% increase over 2021, with $130 million in annual earnings.

The Membertou Development Corporation (MDC), which oversees the Membertou First Nations’ economic development, was pleased with its investment in 2022.

“We’ve had a very positive year with Clearwater Seafoods. We’re proud of the financial results, and also, the shift the company has made in its 50 per cent Indigenous ownership model,” Bloomberg reported MDC communications representative Kelsea MacNeil said in an email.

As for Premium Brands, 2022 was a record year on both the top and bottom lines.

The company generated a record $6.0 billion in revenue in the past year, 22.3% higher than in 2021. Its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in 2022 was $504.2 million, also a record, up 17.1% from a year earlier.

“Our record results for the fourth quarter, which is a seasonally slower quarter, once again demonstrates the strength and resiliency of our business model as we were able to achieve these during a period of unprecedented volatility,” George Paleologou said in its Q4 2022 earnings release.

Cheap Shares

The company delivered its 18th consecutive year of record results in 2022. Not only that, it met its five-year sales growth target one year ahead of schedule and is on target to meet its adjusted EBITDA five-year target of $600 million in 2023.

Its new five-year target for sales is $10 billion, a compound annual growth rate (CAGR) of 10.8%, and $1 billion in adjusted EBITDA (13.6% CAGR).

Despite a record year for Premium Brands, its stock remains relatively cheap, at 9.7x free cash flow per share of $6.41. In 2022, it paid out dividends of $2.80 per share, a payout ratio of just 43.8%. The company is set to pay a cash dividend of $0.77 in the coming weeks, with an ex-dividend date of March 30.

Institutional ownership has been fairly consistent over the last 18 months. Several funds have established new positions of note in PBH stock. On March 1, Janus Henderson Triton Fund (US:JATTX) increased its holding by 21.7%, to hold a reported 962,497 shares. Portfolio managers at Vanguard Developed Markets Index Fund Admiral Shares (US:VTMGXboosted their holdings to 282,822 shares.

This article originally appeared on Fintel

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