A short seller tries to shake Saputo

A short seller tries to shake Saputo

Attacked in turn Tuesday by a short seller who had previously published negative reports on several other companies in Quebec, Montreal dairy processor Saputo took the hit, losing $850 million in market value on the day.

Saputo shares closed Tuesday’s session down 6% at $32.26 on the Toronto Stock Exchange.

American investor Ben Axler of Spruce Point Capital argues in his 147-page report that Saputo is now in a phase of decline and restructuring of its growth.

Several things are working against Saputo, according to Spruce Point Capital, including declining dairy consumption, costs related to environmental compliance, high wages, etc.

Ben Axler says that Saputo’s cost structure is so high that it is unsustainable in an industry with no growth and thin margins. He says that salaries at Saputo are among the highest in the industry.

“Saputo has reported significant problems in its US operations and recognized the need to reduce the complexity of its supply chain, business and manufacturing operations. »

american difficulties

Management also discussed surplus mozzarella in the US market, the investor says in its report, claiming to have learned that the company’s turnover had dropped significantly with Little Caesars, which would be the largest buyer of mozzarella. Saputo cheese.

“Saputo’s growth opportunities in mozzarella are limited because other large pizza chains like Domino’s and Pizza Hut need a particular cheese that can be frozen that Saputo doesn’t currently offer. »

Spruce Point is also concerned about increasing spending on environmental compliance that would reflect aging manufacturing facilities and challenges in complying with laws.

Ben Axler highlights the problems of Dairy Crest, an English company acquired three years ago.

If seven of the nine analysts who officially follow Saputo recommend buying the stock, Spruce Point believes these analysts’ targets are “tremendously optimistic.” These experts believe that Saputo’s strategic plan will make things better, but Ben Axler disagrees. He thinks Saputo shares are positioned for as much as 60% down and thinks the shares deserve a discount.

His skepticism is fueled in particular, he argues, by the nature of the products (a commodity) and a growth strategy through acquisitions that needs to be reviewed.

Ben Axler adds that 40% of Saputo’s shares are held by small retail investors and that the most important element for them should be the sustainability of the dividend. He believes that the dividend is under threat, among other things, because expenses are expected to increase in the coming quarters to meet the requirements of the strategic plan.


Called to react, the Saputo management simply indicates that the report is “unfounded”, and that it contains “erroneous” interpretations and “incorrect” information, which is misleading and only intended to benefit its author.

“Saputo remains focused on the initiatives of its global strategic plan and on achieving profitable and sustainable growth for all its stakeholders,” it is specified in an electronic statement.

After hitting a low of $24 in the spring, shares of Saputo this month hit their highest level in 52 weeks in the stock market, breaking the $36 mark.

Saputo is just the latest target for this short seller. Several other Quebec companies have been in his crosshairs for five years. Last December, Spruce Point published a negative report against the Montreal provider of electronic payment solutions Nuvei. Three months earlier, a vitriolic report had been written about Montreal cloud trading specialist Lightspeed. The Montreal retailer Dollarama was also attacked in 2018.

This militant investor is also attacking big American business. In particular, he published a negative report on Stryker, an American medical technology giant, this year and on retailer Canadian Tire in 2019.

Short selling is a maneuver in which an investor borrows a stock in the hope that its value will go down in the hope of buying it back later at a lower price. By shorting Saputo’s shares, Spruce Point Capital is positioning itself to profit on a decline in the stock.

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