Turning Point Brands, Inc.

TPB Details

Turning Point Brands, Inc. (NYSE: TPB) is engaged in manufacturing and distributing Other Tobacco Products (OTP) in the US under the "Zig-Zag" and "Stoker's" brand names. TPB's operating segments are 1) Zig-Zag Products, consisting of rolling paper, tubes, finished cigars, and Make Your Own (MYO) wraps; 2) Stoker's Products, comprising Moist Snuff Tobacco (MST) and loose-leaf chewing tobacco products; and 3) NewGen Products, including cannabidiol isolate (CBD), liquid vapor products, and products without tobacco or nicotine. As of September 27, 2021, the company's market capitalization stood at USD 847.61 million.

Update on PMTA Process: On September 17, 2021, the US Food & Drug Administration (FDA) issued a Marketing Denial Order (MDO) to Premarket Tobacco Product Application (PMTA) for some of TPB's vapor products. However, TPB believes that its products are appropriate for preserving public health as per Family Smoking Prevention and Tobacco Control Act, 2009, and helps adult smokers switch to less hazardous products. Going forward, it seeks to explore options, including a formal appeal of the judgement and potential legal remedy and will continue to consult with the FDA and other stakeholders.

Inorganic Growth Initiatives: On July 30, 2021, TPB increased its equity stake in ReCreation Marketing, a Canada-based distribution company engaged in the marketing and distribution of smoking accessories, vaping, and alternative products categories to 65% from 50%. Under this transaction, ReCreation will change its name to Turning Point Brands Canada Corporation over the coming 90 days. This investment furthers TPB's Canada footprint and provides an opportunity for a wide range of products to access the Canadian market.

Q2FY21 Results: The company reported YoY growth of 16.84% in net sales to USD 122.64 million in Q2FY21 (ended June 30, 2021) compared to USD 104.96 million in Q2FY20. Net income for TPB increased to USD 15.36 million in Q2FY21 vs. USD 10.30 million in Q2FY20. As of June 30, 2021, the company had cash & cash equivalents of USD 157.47 million and total debt of USD 430.42 million. On August 04, 2021, the company declared a dividend of USD 0.055 per common share, payable on October 08, 2021, to shareholders of record on September 17, 2021.

Key Risks: The tobacco industry is amongst the most highly regulated globally, with manufacturers required to comply with various regulatory regimes. These restrictions could affect BTI's ability to commercially market its products, thus harming its business and financial position.

Outlook: In FY21, TPB expects its revenue to range between USD 447 – 462 million, along with an adjusted EBITDA of USD 108 – 113 million. For Q3FY21, TPB forecasts its net sales to range from USD 109 – 114 million.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

TPB Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: TPB's stock price has increased 4.60% in the past three months and is currently leaning towards the higher band of its 52-week range of USD 25.99 to USD 61.08. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 44.29. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 51.29. Considering the slight uptick in the stock price, decent financial performance, current valuation, and associated risks, we recommend a "Hold" rating on the stock at the closing price of USD 45.97, up 2.63% as of September 27, 2021.

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

* All forecasted figures and industry information have been taken from REFINITIV.

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