Mav Beauty Brands Inc (TSX: MAV) is a Canada-based global personal care company. The company’s personal care brands include Marc Anthony True Professional, Renpure, Cake Beauty and The Mane Choice.

Investment Rationale

• Strong Earnings Quality: MAV’s accumulated cash from operations over the past 20-quarters is significantly exceeds accumulated net income during the same period, which implies that the company is much healthier than what its net income suggests. The accumulated net income of the past 20-quarters is just USD 1.19 million, which is significantly lower compared to USD 24.81 million accumulated cash flow from operation at the same time. Cash flow from operations is the cash version of net income; the higher, the better.

• Available at Bargained Valuation: From the TTM Price to Cash Flow multiple standpoints, we believe MAV shares are available at a cheap valuation, given MAV’s TTM P/CF multiple of 4.5x against the industry median TTM P/CF multiple of 12.97x, despite the company has maintained decent financial health and consistently generated free cash flow. Also, a single-digit TTM P/CF multiple of the company looks quite a lucrative bet from the mid-term to the long-term investment horizon.

• Robust Product Mix: The company has a diverse collection of authentic and rapidly growing brands that offer consumers a wide range of high quality and innovative products. The group’s portfolio, including Marc Anthony, Renpure, Cake Beauty and The Mane Choice, was built to ensure that each of its brands targets a distinct consumer segment with limited competitive overlap.

• Strong Retail Channel Partnership: The company has built strong and longstanding relationships with its retail partners and international distributors by continually building on the company’s robust pipeline of new products and regularly evaluating potential enhancements to existing product formulations and packaging.

• Higher Institutional Holding: Regardless of the penny cap market categorization of the company, institutional holding in the company stood at 31.59%, which is quite decent. Also, a higher institutional holding reduces the chances of financial shenanigans.

• Debt Reduction: At the end of June 30, 2021, the company’s Debt/Equity ratio stood at 0.59x compared to 0.61x reported as of March 31, 2021. During the last quarter, the company repaid USD 2.5 million of debt.

• RSI Range Shift: An RSI range shift appeared on the daily price chart of MAV, as for the past four trading sessions, momentum indicator RSI has taken support at 40 levels, indicating that stock is not charting into bearish territory, and the RSI oscillator is rising, which is another positive indicator.

Technical Price Chart (October 19, 2021). Source: Refinitiv, Analysis by Kalkine Group

• Risk Associated to Investment: Key risks include intense competition, poor inventory management, poor debt protection metrices, inflationary pressure, supply chain disruptions and resurgence in COVID-19 cases.

Financial Highlights: Q2FY21

Source: Company Filing

• Revenue down slightly: Revenue down by 1.8% on a YoY basis to USD 29.1 million due to lower net distribution across a number of brands.
• Contraction in Gross Profit and Gross margin: In Q2FY21, MAV gross profit declined by 19.6% to USD 11.7 million, and gross margin declined by 890 bps to 40.1%. This was mainly because of the company's decision to streamline its product collections to create a more efficient assortment of products.
• EBITDA Up ~72% on a YoY: Q2FY21 reported EBIDTA stood at USD 8.3 million, up ~72% from USD 4.8 million reported in the same period of the previous fiscal. The increase was primarily attributable to a decrease in integration, restructuring, and other costs offset by a decrease in gross profit.
• Lower Adjusted EBITDA: Adjusted EBITDA declined to USD 3.8 million vs USD 8.1 million in Q2FY20, mainly because of lower topline numbers, contracted gross margin and higher selling and administrative costs.
• Higher Net Income: Q2FY21 reported net income surged to USD 4.1 million vs USD 1.6 million reported in Q2FY20; however, adjusted net income plummeted from USD 4.0 million to USD 0.7 million.
• Reduction in Adjusted Free Cash Flow: Adjusted free cash flow declined to USD 2.3 million as compared to USD 7.1 million reported in the same period of the previous financial year.

Valuation Methodology (Illustrative): Price to Earning Based Valuation Metric

Note: Premium (discount) is based on our assessment of the company’s growth drivers, economic moat, competitive advantage, stock’s current and historical multiple against peer group average/median and investment risks

Stock Recommendation

MAV Beauty Brands is a global personal care company focused on acquiring great independent brands and helping these brands to scale and win market share. The company has built an operating platform to build brands through expanded distribution, innovation, and marketing. Today, the group has a diversified portfolio of four complimentary personal care brands – Marc Anthony, Renpure, Cake Beauty and The Mane Choice – offering premium quality hair care, body care and beauty products. These products are sold in over 25 countries around the world and in more than 100 of the world’s largest retailers. The company’s shares are trading at a discounted valuation compared to the industry median from the TTM Price/Cash Flow standpoint. Also, the company has deleveraged its balance sheet during the quarter just gone by, which implies lowering balance sheet risk. On the technical analysis front, RSI 40 support indicates that bearishness is exhausting. Hence, based on the above rationale and valuation, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 2.20 on October 19, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

1-Year Price Chart (as of October 19, 2021). Source: REFINITIV, Analysis by Kalkine Group.

*The reference data in this report has been partly sourced from REFINITIV.

*Recommendation is valid on October 20, 2021, price as well.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.