Investment idea generation.

Blog

Our thoughts.

The Great White North: Finding Value In Meats

Sign up for the daily activist investing newsletter to stay in the know. 

Bacon. Not Just Tasty, Profitable for Investors by TMFDeeJ aka Jason Knapp

Last month I wrote a post discussing a company that has invested millions of dollars and years of its time improving its operations that I believed was a coiled spring, ready to unleash fantastic operating results and in turn huge gains for investors.  There has been another positive development in the situation. My last piece on the topic: A little talked about type of special situation and how to profit from it

For those of you who didn't read my previous piece, the company I am talking about is Maple Leaf Foods.  I currently own real money positions in the company both on U.S. exchanges under its OTC ticker $MLFNF and directly on the Toronto Stock Exchange under the ticker MFI.  Maple Leaf is a Canadian company that produces meats, particularly pork, along the lines of the U.S. firms Hormel $HRL or Tyson $TSN.

On April 30th, the fruits of the years of labor that Maple Leaf has put into getting leaner and meaner started to become apparent.  The company turned its first profit in quite some time, reporting adjusted EPS of $0.05/share versus a loss of $0.24/share during the same period a year ago.  Maple Leaf's EBITDA margin improved to 4.7% from negative 1.1% a year ago as well.

Commodity prices remaining equal, I expect the operational improvement at Maple Leaf to continue as it closed the last of its legacy facilities that it has been forced to run in tandem with its new state-of-the-art facility in April. 

Even better, after more than a year of dealing with the massive headwind of high input costs and high consumer prices that hurt consumer demand for its products as a result of the Porcine Epidemic Diarrhea Virus, pork prices are finally moving in the right direction for the company.  Take a look at this interesting article that Bloomberg published on the subject yesterday: Cheap Bacon Is About to Be Everywhere, Again.

"Last year, a piglet-killing virus shrank U.S. hog herds, sending futures prices to all-time highs, and farmers scrambled to capture those profits. Record U.S. pork production will surpass beef output for the first time as overseas demand slows, creating today’s glut and sending both retail and wholesale prices to deliciously low levels...

At the supermarket, bacon has slumped 25 percent in the past year, to $4.12 a pound this week, according to U.S. Department of Agriculture data. Wholesale pork bellies, the cut of meat used to make bacon slices, touched a five-year low in April and now cost 46 percent less than a year ago.

Such discounts have brought out buyers in droves...

Even though retail prices are down, consumers paid more than seven times the wholesale price for bacon last month, a record spread. Milwaukee-based supermarket chain Roundy’s Inc. expects prices to continue to tumble throughout 2015 as costs such as feed decline, Jim Hyland, a spokesman, said in an e-mail."

While Maple Leaf does sell some chicken products and there has been a lot of news about the potential for prices increases for chicken after the recent outbreak of Bird Flu in the U.S., most of the impact of that has been contained to egg prices so far...which have little impact upon Maple Leaf.

Maple Leaf's Canadian shares are up nearly 20% year-to-date.  I believe that increase is just the tip of the iceberg for the company and expect significant upside from here.

BWIMaple Leaf Fods