Investors in High Liner Foods Inc. are reeling in profits as the seafood giant continues its aggressive expansion into the hungry U.S. market.
High Liner shares jumped another 4 per cent on Tuesday after the company said it was buying American Pride Seafoods LLC for $34.5-million (U.S.). The deal is the latest step toward High Liner's goal of becoming the leading supplier of frozen seafood in North America.
Shares in the Lunenberg, N.S.-based company, known for its "Captain High Liner" brand, have risen by nearly 30 per cent since late July, when rumours began to surface that it was in talks with Seattle-based American Seafoods Group LLC to buy the U.S. firm's frozen seafood and scallop processing unit in New Bedford, Mass.
High Liner's thinly traded stock is near its 52-week high of $39 set in January, and up about 58 per cent over the past year.
The gains have come despite a challenging few quarters, which included supply shortages and softening consumer demand in the slowly recovering American restaurant market.
Investors remain attracted to High Liner's growth-by-acquisition strategy.
"High Liner is doing for fish what Saputo has done for cheese, which is making targeted acquisitions and growing their exposure outside of Canada," said Barry Schwartz, vice-president of Baskin Financial Services Inc., which has been buying the stock for its clients since 2011. It's one of the fund company's largest positions.
High Liner starting buying U.S. rivals in 2007, but made a transformative acquisition in 2011 with the $230.6-million purchase of Icelandic Group's U.S. and Asian operations.
The American Pride acquisition will bump up High Liner's U.S. revenue to more than 70 per cent of the company's total sales, from 65 per cent before the deal. Most of the remaining sales are from Canada, with a tiny percentage in Mexico. That's a dramatic change from 2006, when about two-thirds of High Liner's revenues came from Canada.
With the acquisition of American Pride, High Liner says about 70 per cent of its sales will be in the coveted food services business, which includes providing fish products to hotels, restaurants, hospitals and schools.
"In the U.S market, about 70 per cent of seafood consumption is actually outside of the home. So, in a seafood context, it is where the action is," High Liner chief executive officer Henry Demone said in an interview.
While the American market has been challenging, it's also creating opportunities for the company to grow.
"We think there are more deals out there … The great thing about the seafood world is that there are many species," said Mr. Demone, who has been with the company on and off since 1977 and CEO for about the past 20 years. He's also on the Saputo board of directors.
High Liner has a goal to reach $150-million in adjusted earnings before interest, taxes, depreciation and amortization by 2015, while cutting about $25-million in costs from its operations.
It needs one more acquisition about the size of American Pride to meet that goal, according to Beacon Securities Ltd. analyst Michael Mills.
Despite its challenges, which led to lower-than-expected second-quarter results, Mr. Mills likes the company and its regularly rising dividend, which yields about 2 per cent.
The company has raised its quarterly dividend four times in the past two years alone, including a 20 per cent bump to 18 cents in the summer.
"It's an nice defensive story with a growing dividend and a very seasoned management team," said Mr. Mills, who has a "buy" rating on the stock and a $42 price target.
The stock isn't very liquid, which may deter institutional investors who want to buy large positions in the company. But that shouldn't put off retail investors, said Octagon Capital analyst Bob Gibson.
He raised his share-price target on Tuesday to $45 from $41.50 and reiterated his "buy" rating after the American Pride deal.