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Loblaw Companies Limited (L)
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Metro Inc. (MRU)
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Empire Company Limited Non-Voting Class A Shares (EMP.A)
What’s your thesis on Empire? I’ve held the position for several years and it seems to be the perennial underperformer of the grocers (MRU, L). Trying to decide whether it’s time to cut the position and move on to better opportunities.
Thank you!
EMP.A operates as a consumer staple retailer under different brand such as FreshCo, Longo’s, etc. and is now trading at 11.5x times' Forward P/E. Revenue growth of EMP.A was in line with L recently, but quite slower than MRU in the last few years. The balance sheet is moderately leveraged, with net debt/EBITDA of around 3.3x. The company has been increasing dividends and repurchasing shares at a moderate pace over the last few years. We think EMP. A may underperform the other two mainly because L and MRU more actively repurchases their shares over time while EMP.A lags in this area. In addition, EMP.A also experienced multiple contractions in the last few years on costs, labour and other issues. The current multiple is the lowest compared to historical averages (11.5x to 16x).
Overall, we think EMP.A is cheap, but we think investors need some patience with it.