Recommendation

Price Tgt. (9 Month)

Ticker
Prior Close
Market Cap
Enterprise Value
Dividend Yield
EPS
EBITDA
P/E
EV/EBITDA
Next Earnings Release March 28, 2014 (Estimate)
Q1 Q2 Q3 Q4 TOTAL
EPS
Consensus
Asante 0.83 1.69 1.75 2.45 6.72
EBITDA (in millions)
Consensus
Asante 20.5 25.5 28.5 33 107.5
2013 2014 2015
EPS
Consensus
Asante - 6.72 7.05
Special Developments Actual 6.43
EBITDA (in millions)
Consensus
Asante - 108 122
Actual 116
N/A
N/A
N/A
N/A
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KIMS
Capital Markets
Key Statistics
Analyst Estimates
116 M
1040 M
763 M
$109.25
8.91
16.70
LAS.A
BUY
$6.70
~1.5%
Initiating Coverage
March 27, 2014
Lassonde Industries
CPG: Food and Beverage
All figures
calculated
using TTM
New Distribution Deal with Reed's Inc. - Reed's is a manufacturer of
naturally brewed soft drinks that operates predominantly in the United
States until recently. It sells its drinks mainly in mainstream American
retailers such as Kroger and Costco as well as specialty food stores
like Whole Foods. Within Canada, Reed's products can only be found
in niche stores but the firm has just agreed to a distribution deal with
Lassonde. The deal gives LAS the rights to use Reed's family of brands
throughout Canada and given LAS' extensive relationship with
retailers it should provide an avenue of growth for Reed's products.
This opportunity will give Lassonde an avenue to expand into soft
drink manufacturing and perhaps provide experience it can use to
develop its own brands in the future.
Share Buyback: In January LAS announced its intention to initiate a
share repurchase program starting with ten percent of the public float
from now until January 2015. Not only does this intention signal
management's confidence in the company, but the dramatic
compression of the float will help stimulate demand for the company's
shares as supply lowers. This, coupled with dividend increases will
help stretch share price returns.
rajank@mcmaster.ca
$130
Founded in Rougemont, Quebec during 1918, Lassonde Industries
(LAS.A) is a firm with rich history that manufactures and bottles of a
broad array of wines and fruit and vegetable beverages under popular
brand names such as Oasis, Del Monte and Fruit. Its two
business segments are Retail and Food Service. Since acquiring
Clement Pappas in 2011, the firm has expanded its beverage portfolio
and ventured into producing food products such soups, broths and
sauces. The acquisition has helped reignite growth for the Canadian
firm which has a very bright outlook.
Hello, today we are initiating coverage for LAS with a BUY
recommendation citing improved brand equity, shelf space and sales
promotions which should do well to help the sell-through as much as
the sell-in of LAS' products. LAS has seen its products receive much
better shelf spacing at retailers such as Shoppers Drug Mart and Wal-
Mart which carry a limited array of soft drink products outside of those
from the Americans: Pepsico, Coca-Cola, Dr. Pepper Snapple and
Monster. These retailers have often used sales promotions to promote
the adoption of LAS' products, particularly in the refrigerated section
of their stores. With respect to the non-perishable products such as
Rougemont and Fruit, sales promotions coupled with improved
shelf spacing has and should continue to ignite growth for LAS going
forward ss it looks to enter the US/Global markets. An underlying
positive outlook for the TSX Composite Index should help compound
returns as well for 2014.
Squeezing returns out of Lassonde
fusiarode@mcmaster.ca
Suliat Ifeyemi Fusigboye - 1055470 Martin Asante - 0954403
asantem@mcmaster.ca
Salvatore Chiarelli - 0945277
chiaresd@mcmaster.ca
Khalil Rajan - 0861017
Page 1
Lassonde Industries
CPG: Food and Beverage
Lassonde's Current Strategy

Historical Stock Performance
Recent Quarterly Performances

LAS' strategy consists of a trifecta; to innovate, consolidate, and focus on providing healthy products. This excites us because it
shows just how dedicated management is to growth. Its largest competitors all benefit from economies of scale which allow them
to offer retailers better pricing arrangements and sell at higher volumes. Nonetheless, LAS has great footing with respect to retail
sales rounding out the top 3 which consists of Pepsico (Tropicana) and Coca-Cola (Minute Maid). These three beverage producers
account for 49% of the juice market.
KIMS
Capital Markets
March 27, 2014
If you look below you will notice that in 2011 there was a considerable increase in sales as well as Earnings Before Interest, Tax
and Depreciation. This is mainly attributed to the acquisition of Clement Pappas which allowed the company to improve its
margins and ignite sales growth. Recently the company has increased is stake from 71 to 84% citing ideal integration between the
two business. This bodes well for those looking for insight on how much the acquisition is helping LAS. Also, the interest expense
of term loans used to finance the acquisition have been relaxed as LAS incrementally pays down its debt. In the third quarter of
2013 for instance, finance expenses increased by about 15% to $5.7 Million. This decrease represents about 10% of the net
income for the latest quarter. Paying down debt remains a priority for the company so this should improve profit margins
accordingly going forward.
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3-Est Q4-Est
133,014 146,870 210,822 269,552 233,406 256,403 255,080 277,320 240,578 258,550 257,569 289,500
93,011 104,920 155,006 195,939 175,552 187,490 184,628 195,717 178,347 185,474 186,188 196,860
29,413 30,885 42,058 48,679 44,679 49,727 47,870 51,030 48,401 53,581 49,190 56,500
10,590 11,065 13,758 24,934 13,175 19,186 22,582 30,573 13,830 19,495 22,191 36,140
28.30% 4.04% 0.60% 41.54% 24.41% 73.39% 64.14% 22.62% 4.97% 1.61% -1.73% 18.21%
Cost of Goods Sold
2011 2012 2013
Sales
Depreciation & Amortization 23,072 31,622 34,784
Selling and Admin Expenses
QUARTERLY OPERATING PROFIT
YOY EBITDA GROWTH
ANNUAL EBITDA 83,419 117,138 126,440
YOY EBITDA GROWTH 40.42% 7.94%
Taxes 17,139 23,004 24,655
EBIAT 43,208 62,512 67,001
Page 2
Lassonde Industries
CPG: Food and Beverage
Historical Annual Performance
Future Considerations
Current Challenges
Getting the best out of its acquisition, using CPC to expand its USA footprint and improve economies of scale
Continued diversification away from soft drinks and into food products
As stated earlier, the main challenge that LAS and other small sized competitors such as National Beverage Corporation
(NASDAQ: FIZZ) and Cott Corporation (TSX: BCB) face is with respect to small margins and poor economies of scale. Larger firms
such as Coca Cola and Pepsico have the benefit of extremely high brand equity and demand. As a result, they produce a much
greater volume of products and get the most of their fixed assets. Furthermore, the high demand gives the larger companies more
leverage when negotiating terms with retail outlets. Lassonde also engages in private-label manfuacturing. This is an industry
with very low margins because it involves retailers who provide low cost alternatives to brand names and rely on the supplier for
even lower prices. A prime example of this is Cott Corporation who relies on Wal-Mart for a substantial part of its business. Its
profit margin ranges from 1 to 2% while the companies such as Coca Cola and Pepsi enjoy profit margins of 15-20%. More details
regarding this and other challenges facing LAS are below:
Volatile raw material / commodity prices
Lassonde is employing an "if it isn't broken, don't fix it" approach as it continues its strategy to seek means of expanding its
product offerring and exploring international opportunities. This strategy is comprised ofusing innovation, licensing agreements
and consolidations to increase sales as well as the bottom line as economies of scale improve. This bodes very well given the
current outlook for the industry. There has been a large shift towards healthier niche products which if marketed well can provide
much greater returns when compared to the unhealthy counterparts. Introducing brands such as Flavur and locking agreements
with firms such as Reed's will help LAS venture into these markets. The expectation is that Lassonde will use such agreements to
develop a competency in producing and marketing carbondated soft drinks before engaging in producing products that yield a
greater demand. Furthermore, as it uses consolidations to expand and improve economies-of-scale it should be able to expand
internationally and compete with some of the American competitors such as Pepsico (Tropicana) and Coca-Cola (Minute Maid).
Below is a summary of opportunities given LAS' current strategy.
Pressure from the larger american companies who have better brand equity and greater EOS
Using licensing/mergers to venture into carbonated soft drinks. A suitable acquisition would be of Canada Dry Motts.
Exchange rate fluctuations, CAD has declined about 11% since 2013 compared to the USD
KIMS
Capital Markets
March 27, 2014
Page 3
Lassonde Industries
CPG: Food and Beverage
Cost of Goods Sold as a % of Revenue- Industry Figures
As you will see, the larger American companies are benefiting from much lower COGS. Gross profit is thus higher.
Volume on purchases of raw materials (fruits / concetrated juice) allows for better hedging and pricing terms
Private label manufacturing (Cott / Lassonde) hinders margins as low cost retailers rely on producer for cheap supply
Increased volume also allows for better usage of fixed overhead, labor and direct labor costs
Valuation Methodology I: Comparable Company Analysis
Enterprise Value Projection (Values in Millions)
FY2014 FY2015
8.9 8.2
135 148
1201.5 1213.6
20 32
-275
-257
-21 -24
925.50 964.60
6.988 6.988
Target Price $132 $138
a share
Key Assumptions
Another dividend increase
Continued lowering of debt and increased cash flow
Sales growth through distribution agreements / consolidations
Non Controlling Interest
Equity Value
Shares Outstanding
EBITDA
EV
Cash Estimate
Debt
Multiple
March 27, 2014
KIMS
Capital Markets
TTM 2014E 2015E Ent. Value TTM Forward TTM 2014E 2015E Mkt. Cap TTM Forward
Coca Cola KO 13100 M 186930 M 14.26 1.94 2.20 2.33 171040 M 20.43 16.60
Pepsico PEP 12340 M 145410 M 11.78 4.37 4.75 5.07 125600 M 19.20 16.30
Lassonde LAS 116 M 1040 M 8.91 6.70 6.60 6.90 763 M 16.70 16.60
National Bev. FIZZ 77 M 976 M 12.58 1.01 1.36 1.17 898 M 19.11 16.60
Cott COT 194 M 1170 M 6.01 0.18 0.41 0.56 771 M 45.20 14.30
SunOpta STKL 59 M 893 M 14.92 -0.13 0.47 0.61 776 M n/a 17.90
EPS P/E
Ticker Corporation
EBITDA EV/EBITDA
Valuation Notes:

* Lassonde undervalued relative to competitors

Reasons:

* Lassonde offers a lower dividend yield to
shareholders...lowest amongst comparables

* Lassonde has strong intangibles, but paie in
comparison to the first tier manufacturers (KO, PEP)

Page 4
Lassonde Industries
CPG: Food and Beverage
Valuation Methodology II: Discounted Cash Flow
DCF's Proposed Market Cap: $842,183,406
Shares outstanding: 6.988 Million
DCF's Proposed Price: $122
March 27, 2014
Using a equal weighting between the two valuation techniques brings us to a valuation of $130. Please be aware that the WACC
was also calculated using debt information from the 2nd quarter of 2013 however.
KIMS
Capital Markets
Sales
Cost of Goods Sold
Selling and Admin Expenses
QUARTERLY OPERATING PROFIT
YOY EBITDA GROWTH
ANNUAL EBITDA
YOY EBITDA GROWTH
Depreciation & Amortization
Taxes
EBIAT
15.03% 11.22% 6.77% 9.77% -15.63% 14.04%
89,913 82,961 73,027 60,509 50,556
231,250
183,750
46,250
36,988
100,513
156,780
43,290
30,529
1,200,000
849,000
228,000
167,400
44,400
33,087
212,800
107,464
38,304
18,604
212,850
122,550
39,775
22,266
216,450
140,970
41,070
26,873
225,810
2014 2015 2016 2017 2018 TERMINAL
1,064,000
782,040
1,075,000
779,375
1,110,000
793,650
1,170,000
830,700
1,250,000
881,250
PROJECTIONS
OPERATING SCENARIO: BASE
COGS/SALES
SGA/SALES
D&A/SALES
EBITDA MARGIN 14.70%
3.70%
73.50%
10.10% 11.40% 12.70% 13.40% 13.95%
70.50%
18.50%
3.70%
70.75%
19.00%
3.70%
71.50%
19.50%
3.70%
71.00%
19.30%
FUTURE ASSUMPTIONS
2014 2015 2016 2017 2018 TERMINAL
20.00%
3.60%
72.50%
19.80%
3.70%

EBIAT
DEPRECIATION & AMORTIZATION (+)
WORKING CAPITAL CHANGES
_____Accounts Receivable (-)
Inventory
_____Accounts Payable/Accrued Liabilities (+)
_____Other Non-Cash Items
CAPEX (PP&E PURCHASES)
UFCF
50,556 60,509 73,027 82,961 89,913
76,869 78,671
(30,000.00) (32,000.00) (35,000.00) (40,000.00) (42,500.00) (45,000.00)
19,565 57,654 64,699 67,406
-10,800 -11,250 -9,675 -9,990 -10,530
(13,626) 599 (3,207) (8,324) (4,111) (7,245)
-9,576
(6,082) (3,041) (5,068) (13,648) (1,115) (3,548)
38,304 39,775 41,070 43,290 44,400 46,250
100,513
2014 2015 2016 2017 2018 TERMINAL
FREE CASH FLOW PROJECTIONS
(438) (2,445) 2,347 6,090 3,008 473
YEAR
UFCF
WACC
GROWTH
PV
PROPOSED ENT. VALUE
$1,122,646,406
52,327
76,869
6.53%
56,013
78,671
6.53%
0.50%
891,636 18,365
57,654
6.53%
50,798
64,699
6.53%
53,508
2014 2015 2016 2017 2018 TERMINAL
19,565
6.53%
67,406
6.53%
DISCOUNTED CASH FLOWS
PREMIUM
10.38%
NET CASH
$12,028,000
MINORITY INTEREST
$18,562,000
DEBT PROPOSED MKT CAP
$273,929,000 $842,183,406
Page 5
Lassonde Industries
CPG: Food and Beverage
Additional Qualitative and Technical Factors
Risk Factors
Competitive Forces: Coincidentally, two of Lassondes main competitors, PepsiCo Beverages and Coca-Cola compete rigorously in
these sectors. They also maintain strong market share in the juice sector with PepsiCo Beverages owning Tropicana and Gatorade,
and Coca-Cola owning Minute Maid. As a result of the decline in sales in both the soft drink and bottled water industries, these
large competitors may look to further penetration of the fruit juice industry to offset this trend. This will result in increased
competitiveness in the juice industry, thereby further driving down profit margins for Lassonde.
Consumer Trends: Lassondes main source of revenue comes from its fruit juice business segments. Many of its products are high
in glucose-fructose and recently, consumer trends/preferences have resulted in declining sales in the soft drink industry (due to
health concerns). The bottled water industry has also taken a hit (due to environmental concerns). This has led to ongoing
discussions of an additional tax being tacked on soft drink sales. Such social and political factors could really adversely affect
Lassonde.
Inclimate Weather: This year, North America experienced a cruel winter that is likely to hinder sales a tad bit. If you view
Lassonde's earnings figures, you will notice that its least amount of sales occurs in Q1. This is due to weather factors. With
Lassonde offering a great deal of chilled beverages, cold weather has the ability to adversely affect sales. However, on the flip
side cold weather coupled with sickness has the ability to heighten the sales of products that cater to the immune system.
Increased Investment Activities: Lassonde has recently continued to improve its Property, Plant and Equipment even during times
of slowed growth. This shows that depsite the current dormancy in demand, the company is still anticipating growth opportunities
that will require robust capital assets. Besides capital assets, the company has also increased its investment in subsidiaries,
namely Clement Pappas. In January Lassonde announced an increase of its stake in the firm. This will lead to higher consolidated
profits.
PEAD History: The past earnings release was accompanied by no change in the company's share price. This is mainly due to the
firm's low trading volume. History suggests that the market takes time to adjust to new information fully and this is especially the
case with narrowly traded securities. Last quarter when Lassonde released there was also a minimal reaction to the earnings
results. However, without any further press releases the company's share price managed to increase from $97.03 to a 52 week
high of $118.40 within the ensuing 70 days. The low trading volume makes it difficult to assess shareholder reactions to earnings
releases. Furthermore, the intimacy of the shareholders provides a good floor / support for the share price.
Earnings Quality and Persistance: Over the past 9 years, Lassonde has seen continuously growing Net Income figures. From 2005
to now, there has been nearly 270% Net Income growth. As discussed earlier, this increase in earnings over the years can be
attributed to many factors involving supermarkets such as increased shelf space, sales promotions, and better brand equity.
Despite this continued growth, the most recent figures released for Q4 of 2013 indicated that there has been a decline of 5.9% in
Net Income from Q4 of 2012. This is not an area of concern because we suffered an unnaturally long and cold winter in
2013/2014. As such, Lassondes products typically dont sell well during the colder seasons. Furthermore, there was an increase in
selling and administrative expenses attributible to operational adjustments related to the Clement Pappas and Company, Inc.
integration process. This has naturally led to higher advertising expenses as well. Lassonde should be expected to at least
rebound from this minor drop, if not see a significant increase in Net Income related to Lassonde's increased exposure to the US
market. In conclusion, Lassonde has seen healthy growth in earnings and should be expected to continue to see significant growth
looking to the future.
KIMS
Capital Markets
March 27, 2014
10
20
30
40
50
2005 2006 2007 2008 2009 2010 2011 2012 2013
Net Income Between 2005-2013 ($ Millions)
Net Income ($Mn)
Page 6