BRBR - Post Holdings could pursue more M&A activity - Barclays

2023-05-02 11:30:56 ET

In a note reinstating coverage of Post Holdings ( NYSE: POST ) at Buy, Barclays sees potential for “transactions to beget transactions.”

The reinstatement of coverage comes following the closure of a deal with J.M. Smucker ( SJM ) to acquire pet food brands including the Rachael Ray Nutrish, 9Lives, Kibbles 'n Bits, Nature's Recipe and Gravy Train brands. The approximately $1.2B deal is seen as mutually beneficial, according to equity analyst Andrew Lazar. He argued that the deal allows JM Smucker ( SJM ) to focus on profitability while Post Holdings ( POST ) can pursue growth.

However, he noted that the latter company’s pursuit of growth is likely to extend beyond just the latest transaction.

“In our view, perhaps even more intriguing for POST, from a capital allocation standpoint, aside from the potential opportunity to start a ‘buy and build’ strategy within the advantaged pet category, we think this transaction could well enable strategic optionality for the remainder of the portfolio, over time,” Lazar told clients. “Specifically, POST has a history of operating as more of a publicly traded private equity firm, with portfolio optimization moves adding significant value, over time, as seen most recently with its spin-off of BellRing Brands ( BRBR ). We believe the addition of some $1.5B in sales (20-25% of total POST sales) could provide the necessary scale in its Consumer Brands segment to enable other, value creating potential asset

separations, over time.”

Read more on UBS’ appraisal of the deal with Smucker’s .

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