TSX Commentary

George Weston Limited (WN) – $71.50 – A Hearty Quarter; Forecasts Unchanged, Tweaking Price Target
Sector Perform, Average Risk, Price Target: $75.00 (prev. $74.00)
WN’s Q4 Operating earning were basically in-line with expectations and margins were higher than forecast due to better than expected productivity gains and lower operating costs in the Food Processing segment. RBC CM’s calculation of EPS
ex-items is $0.81, in-line with forecast and up from adjusted earnings of $0.49 in the prior year. EPS as reported was $0.52. Until RBC CM gets greater insight into deployment of WN’s sizeable cash balance, the key metric investors should be focused on is the underlying performance of the food processing operations. The good news is that EBITDA from Weston Foods was a tick better than expected, implying that RBC CM’s assessment of value for WN ex-Loblaw and ex-cash remains unchanged. As for the deployment of the cash balance, management reiterated on the conference call that it is continuing to assess the options, with no commitments around timing/nature of the ultimate use of the $2.5 billion in proceeds from the sale of its U.S. baking assets, which closed in late January of 2009. Management is looking for real growth opportunities in its core or related businesses and remains committed to price discipline. Based on yesterday’s closing share prices, the implied value of WN’s food processing assets and cash on hand is $22, in-line with RBC CM’s fundamental value calculation of $22. RBC CM is tweaking its WN target from $74 to $75 to reflect the previously published $1 increase in its Loblaw target price.