TSX Commentary » George Weston Ltd

George Weston Limited WN A Hearty Q42009 Forecasts Unchanged, Tweaking Price Target

admin — Wed, 24 Feb 2010 17:40:17 +0000

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.

George Weston Ltd Waiting for Go-Dough: Q4/09 Preview

admin — Mon, 22 Feb 2010 22:59:23 +0000

George Weston Ltd. (WN) – $70.96 – Waiting for Go-Dough: Q4/09 Preview
Sector Perform, Average Risk, Price Target: $74.00
Given that Loblaw (TSX: L, $32.52; O-Avg), which generates approximately 90% of consolidated EBITDA, reported last week, the focus for tomorrow’s release will be on: 1) operating trends at Weston Foods; and 2) any insight provided into the timing/nature of deployment of WN’s sizeable cash balance. Generally cautious consumer spending moderated top line at Weston Foods through the first nine months of 2009, and RBC CM expects similar performance for Q4. But extensive organizational realignment and focus on cost containment are delivering industry-leading levels of profitability. For Q4, RBC CM forecasts revenues of $371 MM at Weston Foods and EBITDA of $50 MM. As for the deployment of the cash balance, RBC CM believes management will reiterate that it is continuing to assess the options, with no commitments to the Street 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. RBC CM’s incorporation of the actual Loblaw Q4 results into its WN model and modification of assumptions for WN Foods drives an increase in Q4/09 EPS from $0.62 to $0.81 and RBC CM’s 2009 EPS estimate from $3.13 to $3.31. Revised RBC CM $C forecasts drive a modest reduction in 2010E/2011E EPS from $3.27 to $3.19 and $4.06 to $3.86, respectively. RBC CM’s target remains unchanged at $74. Based on Friday’s closing prices, the implied value of WN’s non-Loblaw assets is $21, vs. RBC CM’s assessment of fair value of $22.