Alex Cutulenco | October 1, 2015: SunOpta is trading at a 52-week low of C$6.50 after seeing its stock price slashed in half since early August. With a market cap of just over C$500 million, the stock continues to experience large trading activity with a 265% increase in the 5 over 30 day in average daily volume traded, and a significant $930,000 in daily traded value turned over on average over the last 5 days alone. The Company has underperformed the S&P/TSX Composite by 39%, and investors want answers – which we will try to answer. We have written about this organic food stock supplier in the past, if you’re interested in receiving greater insight into this story.
Stock Performance – 52 week
1. Missed Q2/2015 Financial Results
SunOpta delivered adjusted EPS of $0.08 vs. the $0.11 consensus analyst forecast. The results reflect an 8% top-line miss and a challenged quarter in Consumer Products, which took another step backward in profit growth. SunOpta, Inc. (STKL) generated revenue of $1.2 billion and EBITDA of $58 million during the last 12 months (LTM). The Company ended the quarter with $4 million in cash and total debt of $158 million.
SunOpta’s continuous focus on natural/organic foods and ingredients can deliver favorable long-term growth. The Company continues to experience difficulty in transitioning its revenue growth to earnings growth and the Q2 results reflected that challenge.
2. Business Acquisitions
SunOpta announced a strategic acquisition of Sunrise Holdings on July 31, 2015. SunOpta is paying ~US$444 million for Sunrise Holdings, with LTM sales of ~US$275 million and LTM EBITDA of US$30 million. The purchase price is 15x LTM EBITDA. Sunrise also posted a decline in adjusted EBITDA in 1H15 vs. 1H14. Following this deal, 57% of revenue will be through packaged products with higher margins. In addition, the customer base will be broader, mitigating the impact seen in Q2 when the Company’s largest aseptic beverage customer experienced lower volumes.
SunOpta also announced recently the acquisition of Niagara Natural for $6.7 million. While small, Niagara further adds to both the private label volume and the Company’s exposure to fruit ingredients and finished products.
3. Management Change
SunOpta delivered a timely presentation at the Canaccord Genuity Growth Conference in August, with the soon-to-be CEO Rik Jacobs laying out his objectives for the Company’s future. Long-term targets were reiterated at 8% EBIT and 10% EBITDA margins by 2017, plus 10% growth. This was positive news for investors, who were expecting reduced targets given the change at the top. Mr. Jacobs reiterated his priorities of focusing on where SunOpta has or can gain a competitive advantage, delivering more value to customers, and reducing costs by leveraging the integrated platform.
Takeaways:
SunOpta has been a volatile stock over the last 15 years, yet long-time investors are acceptant of this, with short interest at only 2.5% of the outstanding float. Investors remain interested in companies that will profit from consumer trends toward the adoption of healthier eating habits and lifestyles. SunOpta’s focus on sourcing and processing non-GMO and organic food products will drive higher earnings power, while a change in management might stem new initiatives and a revitalized mindset for future growth. The recent downturn in the company’s stock price may reverse itself within the upcoming 12 months.
Alex can be reach at: alex@gravitasfinancial.com
