George Weston Earnings: Value Focus and Cost Discipline Drive Profit Growth; Shares Overvalued

We plan to maintain our CAD 175 per-share fair value estimate for no-moat George Weston after analyzing its first-quarter results, with sales and adjusted EBITDA up 5% and 7% respectively. We attribute the solid performance to that of its main subsidiary no-moat Loblaw (over 90% of total sales and profits), which has sharpened the value focus in grocery and pharmacy retail to appeal to financially constrained Canadian shoppers. The other subsidiary, Choice Properties, also managed to deliver steady revenue and profit growth despite macro headwinds thanks to its strategic focus on necessity-based retailers and logistics providers. We maintain our 10-year average projections for low-single-digit sales and a 6% adjusted operating margin, and view shares as overvalued.