Stocks’ Details

Cott Corporation

Strong organic growth and higher customer retention rate in 4QFY19 is a Key Growth Driver: Cott Corporation (TO: BCB) is engaged in home and office bottled water delivery and filtration services in North America and Europe.

Q4FY19 Financial Highlights for the Period ended 31 December 2019: BCB announced its quarterly results, wherein the company reported total sales of $600.2 million, as compared to $599.2 million reported in the year-ago period. However, adjusted revenues (excluding the impact of changes in foreign exchange, sale of Cott Beverages, and the change in the average cost of coffee) increased 4% year-over-year to $603 million, as compared to $579 million. The year-over-year increase in the base business reflected strong momentum in the Home & Office Delivery ("HOD Water") bottled water. Increase customers and higher pricing continued to support top-line growth. Meanwhile, strong customer retention rate (83.5% at the end of FY19 compared to 83% in FY18) further drove growth. Adjusted EBITDA soared 22% to $85 million in 4QFY19, as compared to $70 million in the year-ago quarter period. The year-over-year increase was driven by higher volumes and pricing coupled with favorable mix. Net income from continuing operations stood at $6.6 million as compared to $3.6 million in the prior-year period.  Earnings from continuing operations stood at 5 cents per share in 4QFY19, as compared to 3 cents in 4Q18.

Cash Flow Details: At the end of the quarter, the company’s cash balance stood at $205.5 million. Total debt at the end of the period amounted to $1.3 billion. Adjusted free cash flow for 4Q19 came in at $111.0 million. The company announced a dividend of 6 cents per share during the quarter. Also, the company repurchased shares worth $28 million in FY19.

4Q19 Financial Highlights (Source: Company Reports)

Transformation into a pure-play water solutions provider is likely to spur growth: BCB is transitioning into a pure-play water solutions provider which offers higher growth. The company agreed to sell S&D Coffee and Tea ("S&D") for $405 million to Westrock Coffee Company. Meanwhile, the company announced the acquisition of Roaring Spring Water. The acquisition is likely to bolster BCB’s position in the HOD segment as Roaring Spring Water holds a considerable share in Pennsylvania, Maryland and West Virginia market.

Stock Recommendation: The stock is quoting at $20.80 with a market capitalization of $2.8 billion. Currently, the stock is trading close to its 52-week high of $21.24. The company’s focus on core business is likely to drive growth. The company could benefit from the continued increase in customer count, higher retention rate, increased pricing and acquisitions. Also, the acquisition of Primo Water Corporation is likely to support the top line growth. While we expect streamlining of the business is likely to boost BCB’s growth prospects. However, we would like to wait and watch how the business unfolds. Moreover, BCB stock is trading at a significant premium to the peer group average, which indicates that the upside in the stock could be limited. Considering, the current trading levels, we have a “Watch” stance on the stock as

the stock price reflects the positives. The stock was trading at $20.80, down ~0.9% on 24 February 2020 market close.

Price Chart (Source: Thomson Reuters)

Jamieson Wellness Inc.

Strong momentum in namesake brands driving growth: Jamieson Wellness Inc. (TO: JWEL) is a leading manufacturer, distributor and seller of natural health products. The company’s products range from vitamins, minerals and nutritional supplements to over-the-counter remedies.  Moreover, the company, through contract manufacturing, manufactures and develops products for consumer health companies and retailers worldwide under its “Strategic Partners” segment.

Q4FY19 Financial Highlights for the Period ended 31 December 2019: JWEL announced its quarterly results, wherein the company reported total sales of $103.3 million, as compared to $99.1 million reported in the year-ago period. The year-over-year increase reflected double-digit growth in its flagship Jamieson Brands both in the domestic as well as international markets. Strong consumer demand, increased shelf space at a key customer and distribution network in China drove the segment’s revenues. However, sluggish Strategic Partners segment’s revenues remained a drag. Adjusted EBITDA for 4QFY19 came in at $25.6 million, up from $22.9 million in the year-ago quarter period. The year-over-year growth reflects higher volumes and favorable mix. The company reported adjusted net income of $14.2 million as compared to $12.2 million in the comparable prior-year period.  Adjusted earnings increased to 36 cents per share in 4QFY19, from 31 cents recorded in 4Q18.

4Q19 Financial Highlights (Source: Company Reports)

Cash Flow Details: At the end of the quarter, the company’s cash balance stood at $0.2 million. Total debt at the end of the period amounted to $164.8 million. The company declared a cash dividend of 38 cents per share in FY19, as compared to 34 cents per share in FY18.

Stock Recommendation: The stock is quoting at $26.77 with a market capitalization of $1.04 billion. Currently, the stock is trading close to its 52-week high of $28.83. The company expects revenue growth to accelerate in 2020 as the ongoing strength in demand is likely to sustain in both the domestic and international market. E-commerce expansion, distribution gains, direct-to-consumer strategy, effective media campaigns, and innovation could spur growth. Revenues in the Strategic Partners segment is likely to mark healthy growth driven by higher volumes and change in the billing practices. Further, higher volumes and favorable mix are expected to drive margins higher. Notably, JWEL stock is trading at a forward P/E of ~25x, which well above the peer group median of ~20x. However, JWEL stock has historically traded at a premium when compared to peers. We believe, the upside in JWEL stock seems capped at the current levels as positives are already reflected in the stock price. Also, the Coronavirus outbreak could hamper JWEL’s growth prospects in China (it’s key growth market). Hence, we have a “Watch” stance on JWEL stock until visibility improves in its China business. The stock was trading at $26.77, down ~0.8% on 24 February 2020 market close.

Price Chart (Source: Thomson Reuters)

MTY Food Group Inc

Strength in base business and acquisitions support growth: MTY Food Group Inc (TO: MTY) is a leading operator and franchisor of quick-service and casual dining restaurants and operates across geographies. The company operates multiple concepts restaurants under 80 different banners.

Q4FY19 Financial Highlights for the Period ended 30 November 2019: MTY announced its quarterly results, wherein the company reported revenues of $150.0 million, as compared to $116.5 million reported in the year-ago period. The year-over-year growth reflects the benefits of five acquisitions as well as an increase in same-store sales across Canada and the United States. System sales jumped 45% year-over-year to ~$1.0 billion, reflecting the acquisition of Papa Murphy’s. Same-store sales increased by 1.5%. In Canada, same-store sales continued to grow for the ninth consecutive quarter and increased by 1.5%. Meanwhile, same-store sales rose 2.7% in the United States. However, international sales remained low and recorded a decline of 76%. EBITDA rose 30% year-over-year to $43 million, as compared to $33 million in the year-ago period. Net income came in at $20.7 million, as compared to 13.2 million in the prior-year period.  Earnings increased to 83 cents per share, as compared to 53 cents in 4Q18. At the end of the quarter, the company’s cash balance stood at $50.7 million. Free Cash flows jumped 59% year-over-year to $43.6 million in 4Q19.

4Q19 Financial Highlights (Source: Company Reports) 

MTY boosts shareholders’ return: MTY increased its quarterly dividend by 12% to 18.5 cents per share, as compared to 16.5 cents per share. Meanwhile, the company repurchased $5.2 million worth of shares in 4Q19.

P/E Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock is quoting at $54.25 with a market capitalization of $1.36 billion. Currently, the stock is trading close to its 52-week low of $49.50. The company remains well-positioned to drive growth in 2020 through sustained momentum in same-store sales and acquisitions.  Considering, the current trading levels (which is near to its 52-week low), and growth prospects, we expect MTY’s valuation multiples to expand further. Moreover, the company’s ability to generate cash and boost shareholders’ return through dividends and share buybacks is a positive. We have valued the stock using relative valuation method, i.e., P/E based approach. For this, we have taken a target P/E multiple of 17.5x and arrived at a target price with an upside of lower double-digit (in percentage terms). Hence, we give a “Buy” recommendation on the stock at the current market price of $54.25, up 9.0% as on 24 February 2020.

Price Chart (Source: Thomson Reuters)

Disclaimer 

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