The risk reward for CPG companies right more doesn’t look good to me.
CPG = Consumer Packaged Goods?
The companies can’t grow their business, debt seem high across the sector and the valuation at 10x+ EV/EBITDA doesn’t look great to me for a secular challenged business.
I don't think food companies need to grow, they just need to be stable.
Valuation does look high, but I think that's because the banks will loan a lot to stable companies compared to what they will loan to companies that may deteriorate. Are BGS' loans junk rated? I've read that the common yields more than the debt!
I don't mind if BGS doesn't grow, but I also don't want it to shrink. I guess 2018 was a year of shrinkage, and in 2019 they're going to try to be stable at 2018's reduced level. Not too great I agree. If they shrink again in 2019, then the debt becomes a big and bigger issue. On the other hand, if they make some acquisition, or some industry trend goes in their direction, the leverage becomes less of a concern, and you get bigger upside (since the whole beast is so leveraged).
To have a stronger view I would need more clarity on the strength of their brands, and info about their debt. I don't have enough BGS to make doing all that research work worthwhile, but that's where I would look..... |
